Archived - Legislative Proposals Relating to Income Tax: 1

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1.  This Act may be cited as the Income Tax Amendments Act, 2005.

Part 1

Amendments to the Income Tax Act (Foreign Investment Entities and Non-Resident Trusts) And Another Act as a Consequence

Income Tax Act

R.S., c. 1 (5th Supp.)

2.  (1)  Paragraph 12(1)(k) of the Income Tax Act is replaced by the following:

Foreign corporations, trusts and investment entities

(k)  any amount required by subdivision i to be included in computing the taxpayer’s income for the year;

(2)  Subsection (1) applies to taxation years that begin after 2002.

3.  (1)  The portion of subsection 12.2(11) of the Act before the definition "anniversary day" is replaced by the following:

Definitions

(11)  The following definitions apply in this section and in clause 94.2(11)(c)(iii)(A), and in paragraph 56(1)(d.1) of the Income Tax Act, chapter 148 of the Revised Statutes of Canada, 1952.

(2)  Subsection (1) applies after 2002.

4.  (1)  The definition "controlled foreign affiliate" in subsection 17(15) of the Act is replaced by the following:

"controlled foreign affiliate"
« société étrangère affiliée contrôlée »

"controlled foreign affiliate" has the meaning that would be assigned by the definition "controlled foreign affiliate" in subsection 95(1) if this Act were read without reference to paragraph 94.1(2)(h) and if paragraphs (d) and (e) of that definition were read as follows:

"(d)  one or more persons resident in Canada with whom the taxpayer does not deal at arm’s length, or

(e)  the taxpayer and one or more persons resident in Canada with whom the taxpayer does not deal at arm’s length;"

(2)  Subsection (1) applies after 2002.

5.  (1)  Paragraph 39(1)(a) of the Act is amended by adding the following after subparagraph (ii.2):

(ii.3)  a property in respect of which subsection 94.2(3) applies (and subsection 94.2(20) does not apply) to the taxpayer for the year,

(2)  Subsection (1) applies to dispositions that occur after 2002.

6.  (1)  Paragraph 51(1)(a) of the French version of the Act is replaced by the following:

a)  sauf pour l’application du paragraphe 20(21) et de l’alinéa 94(2)m), l’échange est réputé ne pas constituer une disposition du bien convertible;

(2)  Paragraph 51(1)(c) of the English version of the Act is replaced by the following:

(c)  except for the purposes of subsection 20(21) and paragraph 94(2)(m), the exchange shall be deemed not to be a disposition of the convertible property,

(3)  Subsection 51(4) of the Act is replaced by the following:

Application

(4)  Subsections (1) and (2) do not apply to

(a)  any exchange to which subsection 85(1) or (2) or section 86 applies; and

(b)  any exchange of property if that property was, immediately before the exchange, a specified participating interest.

(4)  Subsections (1) and (2) apply to taxation years that begin after 2002. Subsections (1) and (2) also apply to

(a)  taxation years of a taxpayer that begin after 2000 if a trust, to which the taxpayer, directly or indirectly, transferred or loaned property in 2001 (or would have so transferred property if section 94 of the Act, as enacted by subsection 17(1) of this Act, applied in 2001), makes a valid election under paragraph 17(2)(a) of this Act; and

(b)  taxation years of a taxpayer that begin after 2001 if a trust, to which the taxpayer, directly or indirectly, transferred or loaned property in 2002 (or would have so transferred property if section 94 of the Act, as enacted by subsection 17(1) of this Act, applied in 2002), makes a valid election under paragraph 17(2)(a) or (b) of this Act.

(5)  Subsection (3) applies to exchanges that occur in taxation years that begin after 2002.

7.  (1)  Subsection 52(1) of the Act is replaced by the following:

Cost of certain property the value of which included in income

52.  (1)  In applying this subdivision, an amount shall be added in computing the cost at any time to a taxpayer of a property if

(a)  the taxpayer acquired the property after 1971;

(b)  the amount was not at or before that time otherwise added to the cost or included in computing the adjusted cost base to the taxpayer of the property;

(c)  the property is not an annuity contract, a right as a beneficiary under a trust to enforce payment of an amount by the trust to the taxpayer, property acquired in circumstances to which subsection (2) or (3) applies, or property acquired from a trust in satisfaction of all or part of the taxpayer’s capital interest in the trust; and

(d)  an amount in respect of the property’s value was

(i)  included, otherwise than under section 7 or subsection 94.2(4), in computing

(A)  the taxpayer’s taxable income or taxable income earned in Canada, as the case may be, for a taxation year during which the taxpayer was non-resident, or

(B)  the taxpayer’s income for a taxation year throughout which the taxpayer was resident in Canada, or

(ii)  for the purpose of computing the tax payable under Part XIII by the taxpayer, included in an amount that was paid or credited to the taxpayer.

(2)  Subsection (1) applies to taxation years that begin after 2002.

8.  (1)  Paragraph 53(1)(d.1) of the Act is replaced by the following:

(d.1)  any amount required by paragraph 94(5)(a) (as that paragraph read in its application to taxation years that include December 31, 2000) to be added in computing the adjusted cost base to the taxpayer of the property;

(2)  Paragraph 53(1)(m) of the Act is replaced by the following:

(m)  any amount included in respect of the property

(i)  in computing the foreign accrual property income of the taxpayer because of the description of C in the definition "foreign accrual property income" in subsection 95(1) (as that definition read for taxation years that began before 2003) for a taxation year of the taxpayer that began both before that time and before 2003,

(ii)  under subsection 94.1(1) (as that subsection read in its application to taxation years that began before 2003) in computing the taxpayer’s income for a taxation year that began both before that time and before 2003, or

(iii)  under subsection 94.1(4) in computing the taxpayer’s income for a taxation year that began before, or includes, that time;

(m.1)  any amount required by subsection 94.2(12) or 94.3(5) to be added at or before that time in computing the adjusted cost base to the taxpayer of the property;

(3)  Paragraph 53(2)(b.1) of the Act is replaced by the following:

(b.1)  any amount required by paragraph 94(5)(b) (as that paragraph read in its application to taxation years that include December 31, 2000) to be deducted in computing the adjusted cost base to the taxpayer of the property;

(4)  Subsection 53(2) 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):

(w)  any amount required by subsection 94.2(12), 94.3(5) or 94.4(2) to be deducted at or before that time in computing the adjusted cost base to the taxpayer of the property.

(5)  Subsections (1) to (4) apply to taxation years that begin after 2002. Subsections (1) and (3) also apply to

(a)  taxation years of a taxpayer that begin after 2000 if a trust, in which the taxpayer had a capital interest at any time in 2001, makes a valid election under paragraph 17(2)(a) of this Act; and

(b)  taxation years of a taxpayer that begin after 2001 if a trust, in which the taxpayer had a capital interest at any time in 2002, makes a valid election under paragraph 17(2)(a) or (b) of this Act.

9.  (1)  Subsection 70(3.1) of the Act is replaced by the following:

Exception

(3.1)  In this section, "rights or things" in respect of an individual do not include

(a)  an interest in a life insurance policy (other than an annuity contract the payment for which was deductible in computing the individual’s income under paragraph 60(l) or was made in circumstances in which subsection 146(21) applied);

(b)  eligible capital property;

(c)  land included in the inventory of a business;

(d)  a Canadian resource property;

(e)  a foreign resource property; or

(f)  property in respect of which subsection 94.2(3) applies (and subsection 94.2(20) does not apply) to the individual for the individual’s taxation year in which the individual dies.

(2)  Subsection 70(5.2) of the Act is replaced by the following:

Resource property, land inventory and property subject to s. 94.2(3) of deceased

(5.2)  If in a taxation year a taxpayer dies,

(a)  the taxpayer is deemed

(i)  to have disposed, at the time that is immediately before the taxpayer’s death, of each

(A) Canadian  resource property of the taxpayer,

(B) foreign  resource property of the taxpayer,

(C)  property that was land included in the inventory of a business of the taxpayer, and

(D)  property in respect of which subsection 94.2(3) applies (and subsection 94.2(20) does not apply) to the taxpayer for the taxation year, and

(ii)  subject to paragraph (c), to have received at that time proceeds of disposition for each such property equal to its fair market value at that time;

(b)  any person who, as a consequence of the taxpayer’s death, acquires a property that is deemed by paragraph (a) to have been disposed of by the taxpayer is, subject to paragraph (c), deemed to have acquired the property at the time of the death at a cost equal to its fair market value at the time that is immediately before the death; and

(c)  where the taxpayer was resident in Canada at the time that is immediately before the taxpayer’s death, a particular property described in clause (a)(i)(A), (B) or (C) is, on or after the death and as a consequence of the death, transferred or distributed to a spouse or common-law partner of the taxpayer described in paragraph (6)(a) or a trust described in paragraph (6)(b), and it can be shown within the period that ends 36 months after the death (or, where written application has been made to the Minister by the taxpayer’s legal representative within that period, within any longer period that the Minister considers reasonable in the circumstances) that the particular property has, within that period, vested indefeasibly in the spouse, common-law partner or trust, as the case may be,

(i)  the taxpayer is deemed to have received, at the time that is immediately before the taxpayer’s death, proceeds of disposition of the particular property equal to

(A)  where the particular property is Canadian resource property of the taxpayer or foreign resource property of the taxpayer, the amount specified by the taxpayer’s legal representative in the taxpayer’s return of income filed under paragraph 150(1)(b), not exceeding its fair market value at that time, and

(B)  where the particular property was land included in the inventory of a business of the taxpayer, its cost amount to the taxpayer at that time, and

(ii)  the spouse, common-law partner or trust, as the case may be, is deemed to have acquired at the time of the death the particular property at a cost equal to the amount determined under subparagraph (i) in respect of the disposition of it under paragraph (a).

(3)  Subsections (1) and (2) apply to taxation years that begin after 2002.

10.  (1)  The portion of subsection 73(1) of the Act before paragraph (a) is replaced by the following:

Inter vivos transfers by individuals

73.  (1)  For the purposes of this Part, where at any time any particular capital property (other than a specified participating interest) of an individual (other than a trust) has been transferred in circumstances to which subsection (1.01) applies and both the individual and the transferee are resident in Canada at that time, unless the individual elects in the individual’s return of income under this Part for the taxation year in which the property was transferred that the provisions of this subsection not apply, the particular property is deemed

(2)  Subsection (1) applies to transfers that occur in taxation years that begin after 2002.

11.  (1)  Subsection 75(3) of the Act is amended by striking out the word "or" at the end of paragraph (c.1) and by adding the following after paragraph (c.1):

(c.2)  by a trust that is non-resident, for the purpose of computing its income for the year, because a contributor (as defined by subsection 94(1)) to the trust is an individual (other than a trust) who is, at the end of the year, resident in Canada and has, at the end of the year, been resident in Canada for a period of, or for periods the total of which is, not more than 60 months; or

(2)  Subsection (1) applies to trust taxation years that begin after 2000 except that, for trust taxation years that begin in 2001 or 2002, paragraph 75(3)(c.2) of the Act, as enacted by subsection (1), shall be read as follows:

(c.2)  by a trust that is non-resident, for the purpose of computing its income for the year, because a contributor (as defined by subsection 94(1) as it reads in its application to taxation years that begin after 2002) to the trust is an individual (other than a trust) who is, at the end of the year, resident in Canada and has, at the end of the year, been resident in Canada for a period of, or for periods the total of which is, not more than 60 months; or

12.  (1)  Subsection 85(1.11) of the Act is replaced by the following:

Exception

(1.11)  Notwithstanding subsection (1.1), the following property is not an eligible property of a taxpayer in respect of a disposition of the property in a taxation year by the taxpayer to a corporation:

(a)  a foreign resource property, or an interest in a partnership that derives all or part of its value from one or more foreign resource properties, if

(i)  the taxpayer and the corporation do not deal with each other at arm’s length, and

(ii)  it is reasonable to conclude that one of the purposes of the disposition, or a series of transactions or events of which the disposition is a part, is to increase the extent to which any person may claim a deduction under section 126; and

(b)  a specified participating interest.

(2)  Subsection (1) applies to taxation years that begin after 2002.

13.  (1)  Subsection 85.1(4) of the Act is replaced by the following:

Exception

(4)  Subsection (3) does not apply in respect of a disposition at any time by a taxpayer of property that is

(a)  a share of the capital stock of a foreign affiliate, all or substantially all of the property of which at that time was excluded property (within the meaning assigned by subsection 95(1)), to another foreign affiliate of the taxpayer where the disposition is part of a series of transactions or events for the purpose of disposing of the share to a person who, immediately after the series of transactions or events, was a person (other than a foreign affiliate of the taxpayer) with whom the taxpayer was dealing at arm’s length; or

(b)  a specified participating interest.

(2)  Subsection 85.1(6) of the Act is amended by striking out the word "or" at the end of paragraph (d), by adding the word "or" at the end of paragraph (e) and by adding the following after paragraph (e):

(f)  the exchanged foreign shares were, immediately before the exchange, specified participating interests.

(3)  Subsections (1) and (2) apply to dispositions and exchanges that occur in taxation years that begin after 2002.

14.  (1)  Subsection 86(3) of the Act is replaced by the following:

Application

(3)  Subsections (1) and (2) do not apply

(a)  to any disposition to which subsection 85(1) or (2) applies; and

(b)  to any disposition of property that was, immediately before the disposition, a specified participating interest.

(2)  Subsection (1) applies to dispositions that occur in taxation years that begin after 2002.

15.  (1)  Subsection 87(2) of the Act is amended by adding the following after paragraph (j.94):

Non-resident trusts and foreign investment entities

(j.95)  for the purposes of sections 94 to 94.4, the new corporation is deemed to be the same corporation as, and a continuation of, each predecessor corporation;

(2)  Subsection (1) applies to taxation years that begin after 2000.

16.  (1)  Subsection 91(1) of the Act is replaced by the following:

Amounts to be included in respect of share of foreign affiliate

91.  (1)  In computing the income for a particular taxation year of a taxpayer resident in Canada, there shall be included, in respect of each share owned by the taxpayer of the capital stock of a controlled foreign affiliate of the taxpayer, as income from the share, the percentage of the foreign accrual property income of any controlled foreign affiliate of the taxpayer, for each taxation year of the affiliate that ends in the particular taxation year, equal to that share’s participating percentage in respect of the affiliate determined

(a)  at the end of each such taxation year of the affiliate; and

(b)  without regard to each share in respect of which subsection 94.2(9) applies to the taxpayer for the particular taxation year.

(2)  Subparagraph 91(4)(a)(ii) of the Act is replaced by the following:

(ii)  the taxpayer’s relevant tax factor for the year, and

(3)  Subsection (1) applies to taxation years that begin after 2002.

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

17.  (1)  Section 94 of the Act is replaced by the following:

Treatment of Trusts with Canadian Contributors

Definitions

94.  (1)  The following definitions apply in this section.

"arm’s length transfer"
« transfert sans lien de dépendance »

"arm’s length transfer", at any time by an entity (referred to in this definition as the "transferor") means a transfer or loan (which transfer or loan is referred to in this definition as the "transfer") of property (other than a restricted property) that is made at that time (referred to in this definition as the "transfer time") by the transferor to a particular entity (referred to in this definition as the "recipient") where

(a)  it is reasonable to conclude that none of the reasons (determined by reference to all the circumstances including the terms of a trust, an intention, the laws of a country or the existence of an agreement, a memorandum, a letter of wishes or any other arrangement) for the transfer is the acquisition at any time by any entity of an interest as a beneficiary under a non-resident trust; and

(b)  the transfer

(i)  is a payment of interest, of a dividend, of rent, of a royalty or of any other return on investment, or any substitute for such a return on investment, in respect of a particular property held by the recipient, if

(A)  the transfer is not a transfer described in paragraph (2)(g), or the transfer is a transfer described in paragraph (2)(g) that is an acquisition by the recipient of

(I)  a unit of a mutual fund trust or of a trust that would be a mutual fund trust if section 4801 of the Income Tax Regulations were read without reference to paragraph 4801(b),

(II)  a share of the capital stock of a mutual fund corporation, or

(III)  a particular share of the capital stock of a corporation (other than a closely-held corporation) which particular share is identical to a share that is, at the transfer time, of a class that is listed on a prescribed stock exchange, and

(B)  the fair market value of the property, at the transfer time, is not more than the amount that the transferor would have transferred at the transfer time in respect of the particular property to the recipient if the transferor dealt at arm’s length with the recipient,

(ii)  is a payment made by a corporation on a reduction of the paid-up capital in respect of shares of a class of its capital stock held by the recipient, if

(A)  the transfer is not a transfer described in paragraph (2)(g), and

(B)  the amount of the payment is not more than the lesser of the amount of the reduction and the consideration for which the shares were issued,

(iii)  is a refund in whole or in part of a gift that the recipient made to the transferor, if the recipient is a trust and the transferor is at the transfer time a specified charity in respect of the recipient,

(iv)  is a transfer

(A)  in exchange for which, the recipient transfers or loans property (other than a restricted property) to the transferor, or becomes obligated to transfer or loan property (other than a restricted property) to the transferor, and

(B)  for which it is reasonable to conclude

(I)  having regard only to the transfer and the exchange that the transferor would have been willing to make the transfer if the transferor dealt at arm’s length with the recipient, and

(II)  that the terms and conditions, and circumstances, under which the transfer was made would have been acceptable to the transferor if the transferor dealt at arm’s length with the recipient,

(v)  is made in satisfaction of an obligation that arose because of a transfer to which subparagraph (iv) applied, if

(A)  the transfer is not a transfer described in paragraph (2)(g),

(B)  the transferor would have been willing to make the transfer if the transferor dealt at arm’s length with the recipient, and

(C)  the terms and conditions, and circumstances, under which the transfer was made would have been acceptable to the transferor if the transferor dealt at arm’s length with the recipient,

(vi)  is a payment of an amount owing by the transferor under a written agreement the terms and conditions of which, when entered into, were terms and conditions that, having regard only to the amount owing and the agreement, persons dealing at arm’s length with each other would have entered into, if the transfer is not a transfer described in paragraph (2)(g),

(vii)  is a payment made before 2002 to a trust (or to a corporation controlled by the trust or to a partnership of which the trust is a majority interest partner, together referred to in this subparagraph as "the specified person or partnership") in repayment of or otherwise in respect of a particular loan made by the trust (or by the specified person or partnership, as the case may be) to the transferor, or

(viii)  is a payment made after 2001 to a trust (or to a corporation controlled by the trust or to a partnership of which the trust is a majority interest partner, together referred to in this subparagraph as "the specified person or partnership") in repayment of or otherwise in respect of a particular loan made by the trust (or by the specified person or partnership, as the case may be) to the transferor and either

(A)  they would have been willing to enter into the particular loan if they dealt at arm’s length with each other and the payment is not a transfer described in paragraph (2)(g), or

(B)  the payment is made before 2005 in accordance with fixed repayment terms agreed to before June 23, 2000.

"beneficiary"
« bénéficiare »

"beneficiary", under a trust, includes

(a)  an entity that is beneficially interested in the trust; and

(b)  an entity that would be beneficially interested in the trust if

(i)  each reference in subsection 248(25) to the word "person" were read as a reference to the expression "entity (as defined by subsection 94(1))", and

(ii)  for greater certainty, the reference in subparagraph 248(25)(b)(ii) to

(A)  "any arrangement in respect of the particular trust" were read as a reference to "any arrangement (including the terms or conditions of a share, or any arrangement in respect of a share, of the capital stock of a corporation that is beneficially interested in the particular trust) in respect of the particular trust", and

(B)  "the particular person or partnership might" were read as a reference to "the particular person or partnership becomes (or could become on the exercise of any discretion by any entity), directly or indirectly, entitled to any amount derived, directly or indirectly, from the income or capital of the particular trust or might".

"closely-held corporation"
« société à peu d’actionnaires »

"closely-held corporation", at any time, means a corporation, other than a corporation in respect of which

(a)  there is at least one class of shares of its capital stock that includes shares prescribed for the purpose of paragraph 110(1)(d);

(b)  it is reasonable to conclude that at that time, in respect of each class of shares described by paragraph (a), shares of the class are held by at least 150 entities each of whom holds shares, of the class, that have a total fair market value of at least $500; and

(c)  it is reasonable to conclude that at that time in no case does a particular entity (or the particular entity together with any other entity with whom the particular entity does not deal at arm’s length) hold shares of the capital stock of the corporation

(i)  that would give the particular entity (or the particular entity together with those other entities) 10% or more of the votes that could be cast under any circumstance at an annual meeting of shareholders of the corporation if the meeting were held at that time, or

(ii)  that have a fair market value of 10% or more of the fair market value of all of the issued and outstanding shares of the corporation.

"connected contributor"
« contribuant rattaché »

"connected contributor", to a trust at a particular time, means an entity (including an entity that has ceased to exist) that is a contributor to the trust at the particular time, other than an entity

(a)  that is an individual (other than a trust) who was, at or before the particular time, resident in Canada for a period of, or periods the total of which is, not more than 60 months (but not including an individual who, before the particular time, was never non-resident); or

(b)  all of whose contributions to the trust made at or before the particular time were made at a non-resident time of the entity.

"contribution"
« apport »

"contribution", to a trust by a particular entity, means

(a)  a transfer or loan (other than an arm’s length transfer) of property to the trust by the particular entity;

(b)  if a particular transfer or loan (other than an arm’s length transfer) of property is made by the particular entity as part of a series of transactions or events that includes another transfer or loan (other than an arm’s length transfer) of property to the trust by another entity, that other transfer or loan to the extent that it can reasonably be considered to have been made in respect of the particular transfer or loan; and

(c)  if the particular entity becomes obligated to make a particular transfer or loan (other than a transfer or loan that would, if it were made, be an arm’s length transfer) of property as part of a series of transactions or events that includes another transfer or loan (other than an arm’s length transfer) of property to the trust by another entity, that other transfer or loan to the extent that it can reasonably be considered to have been made in respect of the obligation.

"contributor"
« contribuant »

"contributor", to a trust at any time, means an entity (including an entity that has ceased to exist) that, at or before that time, has made a contribution to the trust.

"eligible trust"
« fiducie admissible »

"eligible trust", at any particular time, means a trust, other than a trust

(a)  created or maintained for charitable purposes;

(b)  governed by an employee benefit plan;

(c)  described in paragraph (a.1) of the definition "trust" in subsection 108(1);

(d)  governed by a salary deferral arrangement;

(e)  operated for the purpose of administering or providing superannuation, pension, retirement or employee benefits;

(f)  where the amount of income or capital that any entity may receive directly from the trust at any time as a beneficiary under the trust depends on the exercise by any entity of, or the failure by any entity to exercise, a discretionary power; or

(g)  that has elected in writing filed with the Minister, on or before the trust’s filing-due date for the particular taxation year of the trust that includes the particular time (or for an earlier taxation year that ended before the particular time), that the definition "exempt foreign trust" in this subsection not apply to it for the particular taxation year (or for the earlier taxation year) and for all of its subsequent taxation years.

"entity"
« entité »

"entity" includes an association, a corporation, a fund, a natural person, a joint venture, an organization, a partnership, a syndicate and a trust.

"excluded property"
« action exclue »

"excluded property", at any time, means a particular property issued by a particular entity, if the following conditions are met:

(a)  the particular entity is at that time a corporation, trust or partnership;

(b)  the particular property is at that time

(i)  a share of the capital stock of the corporation,

(ii)  a specified fixed interest in the trust, or

(iii)  an interest, as a member of the partnership, under which, by operation of any law governing the arrangement in respect of the partnership, the liability of the member as a member of the partnership is limited;

(c)  there are at least 150 persons each of whom holds at that time property that at that time

(i)  is identical to the particular property, and

(ii)  has a total fair market value of at least $500;

(d)  it is reasonable to conclude that no more than 10% of the total of all properties each of which is the particular property, or an identical property, is held by an entity (in this paragraph referred to as "the first entity") or another entity with whom the first entity does not deal at arm’s length;

(e)  property that is identical to the particular property can normally be acquired by and sold by members of the public in the open market; and

(f)  the particular property, or identical property, is listed on a prescribed stock exchange.

"exempt amount"
« somme exclue »

"exempt amount", in respect of a particular taxation year of a trust, means an amount

(a)  that is referred to in paragraph 104(7.01)(b) in respect of the trust for the particular taxation year and that is paid or credited to a non-resident person; or

(b)  that is paid in the particular taxation year (or within 60 days after the end of the particular taxation year) by the trust directly to a beneficiary (determined without reference to subsection 248(25)) under the trust, if

(i)  the beneficiary is a natural person none of whose interests as a beneficiary under the trust was ever acquired for consideration,

(ii)  the amount is not included in computing an exempt amount in respect of any other taxation year of the trust,

(iii)  the trust was created before October 30, 2003, and

(iv)  no contribution has been made to the trust on or after ANNOUNCEMENT DATE.

"exempt foreign trust"
« fiducie étrangère exempte »

"exempt foreign trust", at a particular time, means

(a)  a non-resident trust, if

(i)  each beneficiary under the trust at the particular time is

(A)  an individual who, at the time that the trust was created, was, because of mental or physical infirmity, dependent on an individual who is a contributor to the trust or on an individual related to such a contributor (which beneficiary is referred to in this paragraph as an "infirm beneficiary"), or

(B)  a person who is entitled, only after the particular time, to receive or otherwise obtain the use of any of the trust’s income or capital,

(ii)  at the particular time there is at least one infirm beneficiary who suffers from a mental or physical infirmity that causes the beneficiary to be dependent on a person,

(iii)  each infirm beneficiary is, at all times that the infirm beneficiary is a beneficiary under the trust during the trust’s taxation year that includes the particular time, non-resident, and

(iv)  each contribution to the trust made at or before the particular time can reasonably be considered to have been, at the time that the contribution was made, made to provide for the maintenance of an infirm beneficiary during the expected period of the beneficiary’s infirmity;

(b)  a non-resident trust, if

(i)  the trust was created as a consequence of the breakdown of a marriage or common-law partnership of two particular individuals to provide for the maintenance of a beneficiary under the trust who was, during that marriage or common-law partnership, a child of both of those particular individuals (which beneficiary is referred to in this paragraph as a "child beneficiary"),

(ii)  each beneficiary under the trust at the particular time is

(A)  a child beneficiary under 21 years of age at the particular time,

(B)  a child beneficiary under 31 years of age at the particular time who is enrolled at any time in the trust’s taxation year that includes the particular time at an educational institution that is described in clause (v)(A) or (B), or

(C)  a person who is entitled, only after the particular time, to receive or otherwise obtain the use of any of the trust’s income or capital,

(iii)  each child beneficiary is, at all times that the child beneficiary is a beneficiary under the trust during the trust’s taxation year that includes the particular time, non-resident,

(iv)  each contributor to the trust at the particular time was one of those particular individuals or a person related to one of those particular individuals, and

(v)  each contribution to the trust, at the time that the contribution was made, was made to provide for the maintenance of a child beneficiary, while the child was either under 21 years of age, or was under 31 years of age and enrolled at an educational institution located outside Canada that is

(A)  a university, college or other educational institution that provides courses at a post-secondary school level, or

(B)  an educational institution that provides courses designed to furnish a person with skills for, or improve a person’s skills in, an occupation;

(c)  a non-resident trust, if

(i)  at the particular time, the trust is an agency of the United Nations,

(ii)  at the particular time, the trust owns and administers a university described in paragraph (f) of the definition "total charitable gifts" in subsection 118.1(1), or

(iii)  at any time in the trust’s taxation year that includes the particular time or at any time in the preceding calendar year, Her Majesty in right of Canada has made a gift to the trust;

(d)  a non-resident trust

(i)  that, throughout the particular period that began at the time it was created and ends at the particular time, would be non-resident if this Act were read without reference to subsection (1) as that subsection read in its application to taxation years that include December 31, 2000,

(ii)  that was created exclusively for charitable purposes and has been operated, throughout the particular period, exclusively for charitable purposes,

(iii)  if the particular time is more than 24 months after the day on which the trust was created, in respect of which, there is at the particular time a group of at least 20 persons (other than trusts) each of whom at the particular time

(A)  is a contributor to the trust,

(B)  exists, and

(C)  deals with each of the others in the group at arm’s length,

(iv)  the income of which (determined in accordance with the laws described in subparagraph (v)) for each of its taxation years that ends at or before the particular time would, if the income were not distributed and the laws described in subparagraph (v) did not apply, be subject to an income or profits tax in the country in which it was resident in each of those taxation years, and

(v)  that was, for each of those taxation years, exempt under the laws of the country in which it was resident from the payment of income or profits tax to the government of that country in recognition of the charitable purposes for which the trust is operated;

(e)  a non-resident trust that, throughout the trust’s taxation year that includes the particular time, is a trust governed by an employees profit sharing plan, a retirement compensation arrangement or a foreign retirement arrangement;

(f)  a non-resident trust, if

(i)  throughout the particular period that began when it was created and ends at the particular time it has been operated exclusively for the purpose of administering or providing employee benefits,

(ii)  throughout its taxation year that includes the particular time

(A)  the trust is a trust governed by an employee benefit plan or is a trust (referred to in this paragraph as the "specified trust") described in paragraph (a.1) of the definition "trust" in subsection 108(1), and

(B)  the plan or the specified trust is maintained for the benefit of natural persons

(I)  the majority of whom are non-resident, and

(II)  all or substantially all of whom are or were employed by one entity or by two or more entities each of which is related to each other,

(iii)  either

(A)  at all times on or after ANNOUNCEMENT DATE the trust holds no restricted property, or

(B)  the trust

(I)  throughout its taxation year that includes the particular time holds no restricted property, and

(II)  throughout the particular period that began when it was created and ends at the particular time

1.  held cash, or shares of the capital stock of one or more corporations that is an entity referred to in clause (ii)(B)(II), the value of which at each time in the trust’s taxation year that includes the particular time represents all or substantially all of the value of its property at each such time, and

2.  has been governed by terms that provide, in respect of each individual who is a beneficiary under the trust and was resident in Canada at any time while employed by one of those corporations, for a transfer of property to be made by the trust to the individual in satisfaction of a right (other than a right under an arrangement to which subsection 7(2) or (6) applies) of the individual as a beneficiary under the trust only on or after the satisfaction of the conditions, if any, attached to that right, and

(iv)  the plan or the specified trust provides no benefits, other than benefits in respect of

(A)  services rendered to an employer by an employee of the employer, which employee was non-resident throughout the period during which the services were rendered,

(B)  services rendered to an employer by an employee of the employer, other than services that were primarily

(I)  rendered in Canada,

(II)  rendered in connection with a business carried on by the employer in Canada, or

(III)  a combination of services described in subclauses (I) and (II),

(C)  services rendered to an employer by an employee of the employer, in a particular calendar month where

(I)  the employee was resident in Canada throughout no more than 60 of the 72 calendar months ending with the particular month, and

(II)  the employee became a member of, or a beneficiary under, the plan or the specified trust (or a similar plan or specified trust for which the plan or the specified trust was substituted) before the end of the calendar month following the month in which the employee became resident in Canada, or

(D)  any combination of services described by clauses (A) to (C);

(g)  a non-resident trust (other than a prescribed trust or a trust described in paragraph (a.1) of the definition "trust" in subsection 108(1)) that, throughout the particular period that began when it was created and ends at the particular time,

(i)  has been resident in a country (other than Canada) the laws of which impose an income or profits tax, and been exempt, under the laws of that country, from the payment of income tax and profits tax to the government of that country in recognition of the purposes for which the trust is operated, and

(ii)  either

(A)  has been operated exclusively for the purpose of administering or providing superannuation or pension benefits that are primarily in respect of services rendered, outside Canada, by non-resident natural persons, or

(B)   has

(I)  been operated exclusively for the purpose of administering or providing retirement benefits in respect of a particular natural person who is, at the particular time, a resident contributor, and

(II)   received no contributions other than contributions made by, or on behalf of, the particular natural person when the particular natural person was non-resident;

(h)  a non-resident trust that is, at the particular time, an eligible trust under which

(i)  the only beneficiaries that may for any reason receive, at or after the particular time and directly from the trust, any of the income or capital of the trust are entities that are, at the particular time, qualifying investors in respect of the trust, and

(ii)   either

(A)   the following conditions are met:

(I)  there are at least 150 qualifying investors in respect of the trust each of whose specified fixed interests in the trust have at the particular time a fair market value of at least $500, and

(II)  where the total fair market value at the particular time of the interests, of any class of specified fixed interests in the trust, held by a resident contributor to the trust or by any other entity with whom the resident contributor does not deal at arm’s length is more than 10% of the total fair market value of interests of that class, it is reasonable to conclude (determined by reference to all the circumstances including the terms of the trust, an intention, the laws of a country or the existence of an agreement, a memorandum, a letter of wishes or any other arrangement) that that resident contributor is a specified contributor to the trust, or

(B)   the following conditions are met:

(I)  a prescribed form and a copy of the terms of the trust that apply at the particular time have been filed with the Minister by or on behalf of the trust on or before its filing due date for its taxation year that includes the particular time (or a later date that is acceptable to the Minister),

(II)  it is reasonable to conclude (determined by reference to all the circumstances including the terms of the trust, an intention, the laws of a country or the existence of an agreement, a memorandum, a letter of wishes or any other arrangement) that each resident contributor (other than an indirect contributor) to the trust at the particular time is a specified contributor to the trust at the particular time, and

(III)  at no time in a taxation year of the trust that begins after ANNOUNCEMENT DATE and that includes the particular time does the trust hold restricted property; or

(i)  a trust that is, at the particular time, a prescribed trust or included in a prescribed class of trusts.

"exempt service"
« service exempté »

"exempt service" means a service rendered at any time by an entity (referred to in this definition as the "service provider") to, for or on behalf of, another entity (referred to in this definition as a "recipient") if

(a)  the recipient is at that time a trust and the service relates to the administration of the trust; or

(b)  the following conditions apply in respect of the service, namely,

(i)  the service is rendered in the service provider’s capacity at that time as an employee or agent of the recipient,

(ii)  in exchange for the service, the recipient transfers or loans property or becomes obligated to transfer or loan property, and

(iii)  it is reasonable to conclude

(A)  having regard only to the service and the exchange, that the service provider would have been willing to carry out the service if the service provider had dealt at arm’s length with the recipient, and

(B)  that the terms and conditions, and circumstances, under which the service was provided would have been acceptable to the service provider if the service provider had dealt at arm’s length with the recipient.

"exempt taxpayer"
« contribuable exempté »

"exempt taxpayer", for a taxation year of the taxpayer, means

(a)  a person whose taxable income for the taxation year is exempt from tax under this Part because of subsection 149(1) (otherwise than because of paragraph 149(1)(q.1), (t) or (z)); and

(b)  an eligible trust that is resident in Canada at the end of the taxation year and under which

(i)  the only beneficiaries that may for any reason receive, at any time and directly from the trust, any of the income or capital of the trust are persons that are qualifying investors in respect of the trust, and

(ii)  each such beneficiary at each time in the taxation year is a person whose taxable income, for the period that includes all of those times in the taxation year, is exempt from tax under this Part because of subsection 149(1) (otherwise than because of paragraph 149(1)(q.1), (t) or (z)).

"indirect contributor"
« contribuant indirect »

"indirect contributor", to a particular trust at any time, means an entity that is at that time a contributor to the particular trust, if

(a)  the entity would not at that time be a contributor to the particular trust if this section were read without reference to paragraph (2)(n);

(b)  paragraph (2)(n) applies to the entity because another trust made a contribution to the particular trust; and

(c)  the other trust is at that time

(i)  an exempt taxpayer (determined without reference to subparagraph (b)(ii) of the definition "exempt taxpayer" in this subsection),

(ii)  a qualifying investor in respect of the particular trust, and

(iii)  a specified contributor to the particular trust.

"non-resident time"
« moment de non-résidence »

"non-resident time", of an entity in respect of a contribution to a trust and a particular time, means a time (referred to in this definition as the "contribution time") at which the entity made a contribution to a trust that is before the particular time and at which the entity was non-resident, where the entity was non-resident or not in existence throughout the period that began 60 months before the contribution time (or, if the entity is an individual and the trust arose on and as a consequence of the death of the individual, 18 months before the contribution time) and ends at the earliest of

(a)  the time that is 60 months after the contribution time,

(b)  if the entity is an individual, the date of death of the individual, and

(c)  the particular time.

"promoter"
« promoteur »

"promoter", of a trust at any time, means an entity that on or before that time establishes, organizes or substantially reorganizes the undertakings of the trust.

"qualifying investor"
« investisseur admissible »

"qualifying investor", in respect of a trust at a particular time, means an entity

(a)  that is at the particular time a beneficiary (in this definition, determined without reference to subsection 248(25)) under the trust; and

(b)  whose only interests as a beneficiary under the trust are, at all times that the interests exist during the trust’s taxation year that includes the particular time, specified fixed interests of the entity in the trust.

"resident beneficiary"
« bénéficiaire résidant »

"resident beneficiary", at any time under a particular trust, means an entity (other than an entity that is at that time a specified charity, or a successor beneficiary, in respect of the particular trust) that is, at that time, a beneficiary under the particular trust where, at that time

(a)  the entity is resident in Canada; and

(b)  there is a connected contributor to the particular trust.

"resident contributor"
« contribuant résidant »

"resident contributor", to a particular trust at any time, means an entity that is, at that time, resident in Canada and a contributor to the particular trust, but does not include

(a)  an individual (other than a trust) who has not, at that time, been resident in Canada for a period of, or periods the total of which is, more than 60 months (other than an individual who, before that time, was never non-resident); or

(b)  an individual (other than a trust), if

(i)  the particular trust is an inter vivos trust that was created before 1960 by a person who was non-resident when the trust was created, and

(ii)  the individual has not, after 1959, made a contribution to the particular trust.

"restricted property"
« bien d’exception »

"restricted property"

means

(a)  a particular share (or a particular right to acquire a share) of the capital stock of a particular closely-held corporation if the particular share (or the particular right), or a property for which the particular share (or the particular right) was substituted, was at any time acquired as part of a transaction or series of transactions or events under which a specified share of the capital stock of a closely-held corporation was acquired by any entity in exchange for, as consideration for, or upon conversion of, any property;

(b)  an indebtedness (or a right to acquire an indebtedness) owing by another entity if

(i)  the other entity is a closely-held corporation,

(ii)  the indebtedness (or the right), or a property for which the indebtedness (or the right) was substituted, was at any time acquired as part of a transaction or series of transactions or events under which a specified share of the capital stock of a closely-held corporation was acquired by any entity in exchange for, as consideration for, or upon conversion of, any property, and

(iii)  the amount of any payment under a right (whether immediate or future, whether absolute or contingent or whether conditional on or subject to the exercise of any discretion by any entity) to receive, in any manner whatever and from any entity, amounts in respect of the indebtedness, or the value of such a right, is, directly or indirectly, determined primarily by one or more of the following criteria in respect of one or more properties of the other entity (or an entity with which the other entity does not deal at arm’s length):

(A)  the fair market value of the property, production from the property or use of the property,

(B)  gains or profits from the disposition of the property,

(C)  income from the property, profits from the property, revenue from the property or cash flow from the property, or

(D)  any other criterion similar to a criterion referred to in any of clauses (A) to (C); and

(c)  any property (other than excluded property) the fair market value of which is derived in whole or in part, directly or indirectly, from a particular share, an indebtedness or a right described in paragraph (a) or (b).

"specified charity"
« organisme de bienfaisance déterminé »

"specified charity", in respect of a trust at any particular time, is any person (referred to in this definition as the "charity") that at the particular time is a person described in any of paragraphs (a) to (e) and (g.1) of the definition "total charitable gifts" in subsection 118.1(1) other than

(a)  a charity that does not, at the particular time, deal at arm’s length with a specified entity in respect of the trust, and

(b)  a charity that did not, at any specified prior time, deal at arm’s length with a specified entity in respect of the trust,

where

(c)  "specified prior time" in respect of a charity means any time, before the particular time, at which

(i)  an amount was payable to the charity as a beneficiary under the trust,

(ii)  an amount was received by the charity on the disposition of all or part of its interest as a beneficiary under the trust, or

(iii)  a benefit was received or enjoyed by the charity from or under the trust, and

(d)  "specified entity" in respect of a trust at any time means

(i)  an entity that is at that time

(A)  a beneficiary under the trust,

(B)  a contributor to the trust,

(C)  a person related to a contributor to the trust,

(D)  a trustee of the trust,

(E)  an entity that could reasonably be considered to have influence over the operation of the trust or the enforcement of its terms, or

(F)  an entity that could reasonably be considered to have influence over the selection or appointment of an entity referred to in clause (A), (D) or (E), or

(ii)  any group of entities at least one of which is described in subparagraph (i).

"specified contributor"
« contribuant déterminé »

"specified contributor", to a trust at a particular time in a taxation year of a particular entity, means the particular entity, if

(a)  the particular entity is, at the particular time, both a contributor to the trust and a beneficiary (in this definition, other than in clause (d)(ii)(B), determined without reference to subsection 248(25)) under the trust;

(b)  at all times, after February 16, 1999 and on or before the particular time, when it is a beneficiary under the trust, the particular entity’s interest as a beneficiary under the trust is or would, if the definition "specified fixed interest" applied at those times, have been a specified fixed interest of the particular entity in the trust;

(c)  it is reasonable to conclude that, at no time that is after February 16, 1999 and on or before the particular time, has

(i)  the particular entity made a contribution of restricted property to the trust, or

(ii)  another entity made a contribution of restricted property to the trust when that other entity was not dealing at arm’s length with the particular entity; and

(d)  where the particular entity is, at any time that is after February 16, 1999 and on or before the particular time, a beneficiary under the trust

(i)  either

(A)  a prescribed form has been filed with the Minister by or on behalf of the particular entity on or before the particular entity’s filing-due date for that taxation year (or a later date that is acceptable to the Minister), or

(B)  a prescribed form and a copy of the terms of the trust that apply at the particular time have been filed with the Minister by or on behalf of the trust on or before its filing due date for its taxation year that includes the particular time (or a later date that is acceptable to the Minister), and

(ii)  unless the particular entity is an exempt taxpayer for the taxation year, with respect to each particular contribution made after February 16, 1999 and on before the particular time by the particular entity to the trust, it is reasonable to conclude that

(A)  no consideration was received (other than property received by the particular entity that is the particular entity’s interest as a beneficiary under the trust),

(B)  none of the reasons (determined by reference to all the circumstances including the terms of the trust, an intention, the laws of a country or the existence of an agreement, a memorandum, a letter of wishes or any other arrangement) for the contribution is the acquisition at any time by any entity (other than the particular entity) of an interest as a beneficiary under the trust, and

(C)  the fair market value of the particular contribution is equal to the fair market value, at the time of the particular contribution, of the particular entity’s interest as a beneficiary under the trust acquired as a result of the particular contribution.

"specified controlled foreign affiliate"
« société étrangère affiliée contrôlée déterminée »

"specified controlled foreign affiliate", of a particular entity at any time, means an entity that would, at that time, be a controlled foreign affiliate of the particular entity if the particular entity were resident in Canada at that time.

"specified fixed interest"
« participation fixe désignée »

"specified fixed interest", at any time of an entity in a trust, means an interest of the entity as a beneficiary under the trust if

(a)  the interest includes, at that time, rights of the entity as a beneficiary under the trust to receive, at or after that time and directly from the trust, income and capital of the trust;

(b)  the interest was issued by the trust, at or before that time, to an entity, in circumstances that are described by subparagraph (2)(g)(ii);

(c)  the only manner in which any part of the interest may cease to be the entity’s is by way of a transfer (determined as if subsection (2) were read only with reference to clauses (2)(m)(ii)(B) and (D)) of that part by the entity, which transfer is a disposition (determined without reference to paragraph (i) of the definition "disposition" in subsection 248(1) and paragraph 248(8)(c)) by the entity of that part; and

(d)  no amount of income or capital of the trust that any entity may receive directly from the trust at any time as a beneficiary under the trust depends on the exercise by any entity of, or the failure by any entity to exercise, a discretionary power.

"specified party"
« tiers déterminé »

"specified party", in respect of a particular entity at any time, means an entity that is at that time

(a)  an individual who is a spouse or common-law partner of the particular entity;

(b)  a specified controlled foreign affiliate of

(i)  the particular entity, or

(ii)  if the particular entity is an individual, a spouse or common-law partner of the individual;

(c)  an entity for which it is reasonable to conclude that the benefit referred to in subparagraph (8)(a)(iii) was conferred

(i)  in contemplation of the entity becoming after that time a specified controlled foreign affiliate of an entity referred to in subparagraph (b)(i) or (ii), or

(ii)  to avoid or minimize a liability under this Part that arose, or that would otherwise have arisen, because of the application of subsection (3) with respect to the particular entity; or

(d)  a corporation in which the particular entity is a shareholder, if

(i)  the corporation is on or before that time beneficially interested in a trust, and

(ii)  the particular entity is a beneficiary under the trust solely because of the application of paragraph (b) of the definition "beneficiary" in this subsection to the particular entity in respect of the corporation.

"specified property"
« bien déterminé »

"specified property"

means

(a)  a share of the capital stock of a corporation;

(b)  an interest as a beneficiary under a trust;

(c)  an interest in a partnership;

(d)  an interest in any other entity;

(e)  a right to acquire property described in any of paragraphs (a) to (d); and

(f)  any other property deriving its value primarily from property described in any of paragraphs (a) to (e).

"specified share"
« action déterminée »

"specified share" means a share of the capital stock of a corporation other than a share that is prescribed for the purpose of paragraph 110(1)(d).

"specified time"
« moment déterminé »

"specified time", in respect of a trust for a taxation year of the trust, means

(a)  if the trust exists at the end of the taxation year, the time that is the end of that taxation year; and

(b)  in any other case, the time in that taxation year that is immediately before the time at which the trust ceases to exist.

"successor beneficiary"
« bénéficiaire remplaçant »

"successor beneficiary", at any time in respect of a trust, means an entity that is a beneficiary under the trust solely because of a right of the beneficiary to receive any of the trust’s income or capital, if under that right the entity may so receive that income or capital only on or after the death after that time of an individual who, at that time, is alive and

(a)  is a contributor to the trust;

(b)  is related to a contributor to the trust; or

(c)  would have been related to a contributor to the trust if every individual who was alive before that time were alive at that time.

"trust"
« fiducie »

"trust" includes, for greater certainty, an estate that arose on and as a consequence of the death of an individual.

Rules of application

(2)  In this section,

(a)  an entity is deemed to have transferred, at any time, a property to a trust if

(i)  at that time it transfers or loans property (other than by way of an arm’s length transfer or a transfer or loan to which paragraph (c) applies) to another entity, and

(ii)  because of that transfer or loan

(A)  the fair market value of one or more properties held by the trust increases at that time, or

(B)  a liability or potential liability of the trust decreases at that time;

(b)  the fair market value at any time of a property deemed by paragraph (a) to be transferred at that time is deemed to be the amount of the absolute value of the increase or decrease, as the case may be, referred to in subparagraph (a)(ii) in respect of the property;

(c)  an entity is deemed to have transferred, at any time, a property to a trust if

(i)  at that time it transfers or loans property (other than by way of an arm’s length transfer) to another entity, and

(ii)  at or after that time, the trust holds property the fair market value of which is derived in whole or in part, directly or indirectly, from property held by the other entity;

(d)  the fair market value at any time of a property deemed by paragraph (c) to be transferred at that time is deemed to be the fair market value of the property referred to in subparagraph (c)(i);

(e)  if, at any time, a particular entity has given a guarantee on behalf of, or has provided any other financial assistance to, another entity,

(i)  the particular entity is deemed to have transferred, at that time, property to that other entity, and

(ii)  the property, if any, transferred to the particular entity from the other entity in exchange for the guarantee or other financial assistance is deemed to have been transferred to the particular entity in exchange for the property deemed by subparagraph (i) to have been transferred;

(f)  if, at any time after June 22, 2000, a particular entity renders any service (other than an exempt service) to, for or on behalf of, another entity,

(i)  the particular entity is deemed to have transferred, at that time, property to that other entity, and

(ii)  the property, if any, transferred to the particular entity from the other entity in exchange for the service is deemed to have been transferred to the particular entity in exchange for the property deemed by subparagraph (i) to have been transferred;

(g)  each of the following acquisitions of property by a particular entity is deemed to be a transfer of the property, at the time of the acquisition of the property, to the particular entity from the entity from which the property was acquired, namely the acquisition by the particular entity of

(i)  a share of the capital stock of a corporation from the corporation,

(ii)  an interest as a beneficiary under a trust (otherwise than from a beneficiary under the trust),

(iii)  an interest in a partnership (otherwise than from a member of the partnership),

(iv)  an interest in an entity that is not a corporation, partnership or trust (otherwise than from an entity having an interest in the entity),

(v)  a debt owing by an entity from the entity, and

(vi)  a right (granted after June 22, 2000 by the entity from which the right was acquired) to acquire or to be loaned property;

(h)  the fair market value at any time of a property deemed by subparagraph (e)(i) or (f)(i) to have been transferred at that time is deemed to be the fair market value, at that time, of the assistance or service, as the case may be, to which the property relates;

(i)  a particular entity that at any time becomes obligated to do an act that would, if done, constitute the transfer or loan of a property to another entity is deemed to have become obligated at that time to transfer or loan, as the case may be, property to that other entity;

(j)  in applying at any time the definition "non-resident time", if a trust acquires property of an individual as a consequence of the death of the individual, the individual is deemed to have transferred the property to the trust immediately before the individual’s death;

(k)  a transfer or loan of property at any time is deemed to be made at that time jointly by a particular entity and a second entity (referred to in this paragraph as the "specified entity") if

(i)  the particular entity transfers or loans property at that time to another entity,

(ii)  the transfer or loan is made at the direction, or with the acquiescence, of the specified entity, and

(iii)  it is reasonable to conclude that one of the reasons the transfer or loan is made is to avoid or minimize the liability, of any entity, under this Part that arose, or that would otherwise have arisen, because of the application of subsection (3);

(l)  a transfer or loan of property at any time is deemed to be made at that time jointly by a particular entity and a second entity (referred to in this paragraph as the "specified entity") if

(i)  the particular entity transfers or loans property at that time to another entity,

(ii)  the transfer or loan is made at the direction, or with the acquiescence, of the specified entity,

(iii)  that time is not, or would not be, if the transfer or loan were a contribution of the specified entity, a non-resident time of the specified entity, and

(iv)  either

(A)  the particular entity is, at that time, an entity that is a controlled foreign affiliate of the specified entity, or would at that time be a controlled foreign affiliate of the specified entity if the specified entity were at that time resident in Canada, or

(B)  it is reasonable to conclude that the transfer or loan was made in contemplation of the particular entity becoming after that time a particular entity described in clause (A);

(m)  a particular entity is deemed to have transferred, at a particular time, a particular property or particular part of it, as the case may be, to a second entity if

(i)  the particular property is a share of the capital stock of a corporation held at the particular time by the particular entity, and as consideration for the disposition at or before the particular time of the share, the particular entity received at the particular time (or became entitled at the particular time to receive) from the corporation a share of the capital stock of the corporation, or

(ii)  the particular property (or property for which the particular property is substituted property) was acquired, before the particular time, from the second entity by any entity, in circumstances that are described by any of subparagraphs (g)(i) to (vi) (or would be so described if it applied at the time of that acquisition) and at the particular time,

(A)  the terms or conditions of the particular property change,

(B)  the second entity redeems, acquires or cancels the particular property or the particular part of it,

(C)  where the particular property is a debt owing by the second entity, the debt or the particular part of it is settled or cancelled, or

(D)  where the particular property is a right to acquire or to be loaned property, the particular entity exercises the right;

(n)  a contribution made at any time by a particular trust to another trust is deemed to have been made at that time jointly by the particular trust and by each entity that is at that time a contributor to the particular trust;

(o)  a contribution made at any time by a particular partnership to a trust is deemed to have been made at that time jointly by the particular partnership and by each entity that is at that time a member of the particular partnership (other than a member of the particular partnership where the liability of the member as a member of the particular partnership is limited by operation of any law governing the partnership arrangement);

(p)  subject to paragraph (q) and subsection (9), the amount of a contribution to a trust at the time it was made is deemed to be the fair market value, at that time, of the property that was the subject of the contribution;

(q)  an entity that at any time acquires a specified fixed interest in a trust (or a right, issued by the trust, to acquire a specified fixed interest in the trust) from another entity (other than the trust that issued the specified fixed interest or the right) is deemed to have made at that time a contribution to the trust and the amount of the contribution is deemed to be equal to the fair market value at that time of the specified fixed interest or right, as the case may be;

(r)  a particular entity that has acquired a specified fixed interest in a trust as a consequence of making a contribution to the trust — or that has made a contribution to the trust as a consequence of having acquired a specified fixed interest in the trust or a right described in paragraph (q) — is, for the purpose of applying this section at any time after the time that the particular entity transfers the specified fixed interest or the right, as the case may be, to another entity (which transfer is referred to in this paragraph as the "sale"), deemed not to have made the contribution in respect of the specified fixed interest, or right, that is the subject of the sale where

(i)  immediately before the sale, the particular entity would be a specified contributor to the trust if

(A)  the definition "specified contributor" were read without reference to subparagraph (d)(i) of that definition,

(B)  in applying paragraph (b) of that definition, a specified fixed interest included the right, and

(C)  that definition applied immediately before the sale,

(ii)  in exchange for the sale, the other entity transfers or loans, or becomes obligated to transfer or loan, property (which property is referred to in subparagraph (iii) as the "consideration") to the particular entity, and

(iii)  it is reasonable to conclude

(A)  having regard only to the sale and the consideration that the particular entity would have been willing to make the sale if the particular entity dealt at arm’s length with the other entity, and

(B)  that the terms and conditions made or imposed in respect of the exchange are terms and conditions that would have been acceptable to the particular entity if the particular entity dealt at arm’s length with the other entity;

(s)  a transfer to a trust by a particular entity is deemed not to be, at a particular time, a contribution to the trust if

(i)  the particular entity has transferred, at or before the particular time and in the ordinary course of business of the particular entity, property to the trust,

(ii)  the transfer is not an arm’s length transfer, but would be an arm’s length transfer if the definition "arm’s length transfer" were read without reference to paragraph (a), and subparagraphs (b)(i) to (iii) and (v) to (viii), of that definition,

(iii)  it is reasonable to conclude that the particular entity was the only entity that acquired, in respect of the transfer, an interest as a beneficiary under the trust,

(iv)  the particular entity was required, under the securities law of a country or of a political subdivision of the country in respect of the issuance by the trust of interests as a beneficiary under the trust, to acquire an interest because of the particular entity’s status at the time of the transfer as a manager or promoter of the trust,

(v)  at the particular time the trust is not an exempt foreign trust, but would be at that time an exempt foreign trust if it had not made an election under paragraph (g) of the definition "eligible trust", and

(vi)  the particular time is before the earliest of

(A)  the first time at which the trust becomes an exempt foreign trust,

(B)  the first time at which the particular entity ceases to be a manager or promoter of the trust, and

(C)  the time that is 24 months after the first time at which the total fair market value of consideration received by the trust in exchange for interests as a beneficiary (other than the particular entity’s interest referred to in subparagraph (iii)) under the trust is greater than $500,000;

(t)  a transfer, by a Canadian corporation of particular property, that is at a particular time a contribution by the Canadian corporation to a trust, is deemed not to be, after the particular time, a contribution by the Canadian corporation to the trust if

(i)  either

(A)  the trust acquired the particular property before the particular time from the Canadian corporation in circumstances described in subparagraph (g)(i) or (v), or

(B)  another entity acquired property before the particular time from the Canadian corporation in circumstances described in subparagraph (g)(i) or (v) and because of that acquisition the Canadian corporation was deemed by paragraph (c) to have transferred the particular property to the trust,

(ii)  as a result of a transfer (which transfer is referred to in this paragraph as the "sale") at the particular time by any entity (referred to in this paragraph as the "seller") to another entity (referred to in this paragraph as the "buyer") the trust ceases to hold property that is shares of the capital stock of, or debt issued by, the Canadian corporation or that is property the fair market value of which is derived in whole or in part, directly or indirectly, from shares of the capital stock of, or debt issued by, the Canadian corporation,

(iii)  the buyer deals at arm’s length immediately before the particular time with the Canadian corporation, the trust and the seller,

(iv)  in exchange for the sale, the buyer transfers or becomes obligated to transfer property (which property is referred to in this paragraph as the "consideration"), to the seller, and

(v)  it is reasonable to conclude

(A)  having regard only to the sale and the consideration that the seller would have been willing to make the sale if the seller dealt at arm’s length with the buyer,

(B)  that the terms and conditions made or imposed in respect of the exchange are terms and conditions that would have been acceptable to the seller if the seller dealt at arm’s length with the buyer, and

(C)  that the value of the consideration is not, at or after the particular time, determined in whole or in part, directly or indirectly, by reference to shares of the capital stock of, or debt issued by, the Canadian corporation; and

(u)  a transfer, before October 11, 2002, to a personal trust by an individual (other than a trust) of particular property is deemed not to be a contribution of the particular property by the individual to the trust if

(i)  the individual identifies the trust in prescribed form filed with the Minister on or before the individual’s filing-due date for the individual’s 2003 taxation year (or a later date that is acceptable to the Minister), and

(ii)  the Minister is satisfied that

(A)  the individual (and any entity not dealing at any time at arm’s length with the individual) has never loaned or transferred, directly or indirectly, restricted property to the trust,

(B)  in respect of each contribution (determined without reference to this paragraph) made before October 11, 2002 by the individual to the trust, none of the reasons (determined by reference to all the circumstances including the terms of the trust, an intention, the laws of a country or the existence of an agreement, a memorandum, a letter of wishes or any other arrangement) for the contribution was to permit or facilitate, directly or indirectly, the conferral at any time of a benefit (for greater certainty, including an interest as a beneficiary under the trust) on

(I)  the individual,

(II)  a descendant of the individual, or

(III)  any entity with whom the individual or descendant does not, at any time, deal at arm’s length, and

(C)  the total of all amounts each of which is the amount of a contribution (determined without reference to this paragraph) made before October 11, 2002 by the individual to the trust does not exceed the greater of

(I)  1% of the total of all amounts each of which is the amount of a contribution (determined without reference to this paragraph) made to the trust before October 11, 2002, and

(II)  $500.

Liabilities of non-resident trusts and others

(3)  Where at a specified time in a particular taxation year of a trust (other than a trust that is, at that time, an exempt foreign trust) the trust is non-resident (determined without reference to this subsection) and, at that time, there is a resident contributor to the trust or a resident beneficiary under the trust,

(a)  the trust is deemed to be resident in Canada throughout the particular taxation year for the purposes of

(i)  section 2,

(ii)  computing the trust’s income for the particular taxation year,

(iii)  applying subsections 104(13.1) to (29) and 107(2.1), in respect of the trust and a beneficiary under the trust,

(iv)  applying clause 53(2)(h)(i.1)(B), the definition "non-resident entity" in subsection 94.1(1), subsection 107(2.002) and section 115, in respect of a beneficiary under the trust,

(v)  subsection 111(9),

(vi)  determining an obligation of the trust to file a return under section 233.3 or 233.4,

(vii)  determining the rights and obligations of the trust under Divisions I and J,

(viii)  determining the liability of the trust for tax under Part I, and under Part XIII on amounts paid or credited (in this paragraph having the meaning assigned by Part XIII) to the trust,

(ix)  determining the liability of a non-resident person for tax under Part XIII on an amount (other than an exempt amount) paid or credited after 2003 by the trust to the non-resident person, and

(x)  determining whether a foreign affiliate of a taxpayer (other than the trust) is a controlled foreign affiliate of the taxpayer;

(b)  in applying subsections 20(11) and (12) and section 126,

(i)  in determining the non-business income tax (as defined by subsection 126(7)) paid by the trust for the particular taxation year to the government of a country other than Canada no amount shall be included to the extent that it can reasonably be regarded as attributable to income from a source in Canada, and

(ii)  if the trust elects, by notifying the Minister in writing in its return of income for the particular taxation year, to have this paragraph apply,

(A)  the trust’s income for the particular taxation year (other than the portion of the income that is from sources inside Canada or that is from a source, outside Canada, that is a business carried on by the trust outside Canada) is deemed

(I)  to be income of the trust from sources (other than a business carried on by the trust) in the particular country (other than Canada) in which the trust is resident (determined without reference to this subsection), and

(II)  not to be from any other source, and

(B)  in determining the income or profits tax paid by the trust for the particular taxation year to the government of the particular country there shall be included only the total of all amounts each of which is the amount of an income or profits tax that was paid by the trust for the particular taxation year to the government of a country (other than Canada) and that can reasonably be regarded as a tax paid on the trust’s income for the particular taxation year (other than the portion of the income that is from sources inside Canada or that is from a source, outside Canada, that is a business carried on by the trust outside Canada);

(c)  if the trust was non-resident throughout its taxation year (referred to in this paragraph as the "preceding year") immediately preceding the particular taxation year, the trust is deemed to have

(i)  immediately before the end of the preceding year, disposed of each property (other than property described in any of subparagraphs 128.1(1)(b)(i) to (iv)) held by the trust at that time for proceeds of disposition equal to its fair market value at that time, and

(ii)  at the beginning of the particular taxation year, acquired each of those properties so disposed of at a cost equal to its proceeds of disposition;

(d)  each entity that at any time in the particular taxation year is a resident contributor to the trust or a resident beneficiary under the trust

(i)  has jointly and severally, or solidarily, with the trust and with each other such entity, the rights and obligations of the trust in respect of the particular taxation year under Divisions I and J, and

(ii)  is subject to Part XV in respect of those rights and obligations; and

(e)  each entity that at any time in the particular taxation year is a beneficiary under the trust and was a person from whom an amount would be recoverable at the end of 2002 under subsection (2) (as it read in its application to taxation years that began before 2003) in respect of the trust if the entity had received before 2003 amounts described under paragraph (2)(a) or (b) in respect of the trust (as those paragraphs read in their application to taxation years that began before 2003)

(i)  has, to the extent of the entity’s recovery limit for the year, jointly and severally, or solidarily, with the trust and with each other such entity, the rights and obligations of the trust in respect of the taxation years, of the trust, that began before 2003 under Divisions I and J, and

(ii)  is, to the extent of the entity’s recovery limit for the year, subject to Part XV in respect of those rights and obligations.

Excluded provisions

(4)  Paragraph (3)(a) does not apply to deem a trust to be resident in Canada for the purposes of

(a)  the definitions "arm’s length transfer", "exempt foreign trust" and "exempt taxpayer" in subsection (1);

(b)  paragraph (14)(b), subsections 70(6) and 73(1), the definition "Canadian partnership" in subsection 102(1), paragraph 107.4(1)(c) and paragraph (a) of the definition "mutual fund trust" in subsection 132(6);

(c)  determining the liability of a person (other than the trust) that would arise under section 215;

(d)  determining whether, in applying subsection 128.1(1), the trust becomes resident in Canada at a particular time;

(e)  determining whether, in applying subsection 128.1(4), the trust ceases to be resident in Canada at a particular time;

(f)  subparagraph (f)(i) of the definition "disposition" in subsection 248(1);

(g)  determining whether subsection 107(5) applies to a distribution on or after ANNOUNCEMENT DATE of property to the trust; and

(h)  determining whether subsection 75(2) applies to deem an amount to be an income, loss, taxable capital gain or allowable capital loss of the trust.

Deemed cessation of residence

(5)  A trust is deemed to cease to be resident in Canada at the earliest time at which there is neither a resident contributor to the trust nor a resident beneficiary under the trust in a period that would, if this Act were read without reference to subsection 128.1(4), be a taxation year of the trust

(a)  that immediately follows a taxation year of the trust throughout which it was resident in Canada;

(b)  at the beginning of which there was a resident contributor to the trust or a resident beneficiary under the trust; and

(c)  at the end of which the trust is non-resident.

Becoming or ceasing to be an exempt foreign trust

(6)  If at any time a trust becomes or ceases to be an exempt foreign trust (otherwise than because of becoming resident in Canada),

(a)  its taxation year that would otherwise include that time is deemed to have ended immediately before that time and a new taxation year of the trust is deemed to begin at that time; and

(b)  for the purpose of determining the trust’s fiscal period after that time, the trust is deemed not to have established a fiscal period before that time.

Limit to amount recoverable

(7)  The maximum amount recoverable under the provisions referred to in paragraph (3)(d) at any particular time from an entity in respect of a trust (other than an entity that is deemed, by subsection (12) or (13), to be a contributor or a resident contributor to the trust) and a particular taxation year of the trust is the entity’s recovery limit at the particular time in respect of the trust and the particular year if

(a)  either

(i)  the entity is liable under a provision referred to in paragraph (3)(d) in respect of the trust and the particular year solely because the entity was a resident beneficiary under the trust at a specified time in respect of the trust in the particular year, or

(ii)  at a specified time in respect of the trust in the particular year, the total of all amounts each of which is the amount, at the time it was made, of a contribution to the trust made before the specified time by the entity, or by another entity not dealing at arm’s length with the entity, is not more than the greater of

(A)  $10,000 and

(B)  10% of the total of all amounts each of which was the amount, at the time it was made, of a contribution made to the trust before the specified time;

(b)  except where the total determined in subparagraph (a)(ii) in respect of the entity and all entities not dealing at arm’s length with it is $10,000 or less, the entity has filed on a timely basis under section 233.2 all information returns required to be filed by it before the particular time in respect of the trust (or on any later day that is acceptable to the Minister); and

(c)  it is reasonable to conclude that for each transaction or event that occurred before the end of the particular year at the direction of, or with the acquiescence of, the entity

(i)  none of the purposes of the transaction or event was to enable the entity to avoid or minimize any liability under a provision referred to in paragraph (3)(d) in respect of the trust, and

(ii)  the transaction or event was not part of a series of transactions or events any of the purposes of which was to enable the entity to avoid or minimize any liability under a provision referred to in paragraph (3)(d) in respect of the trust.

Recovery limit

(8)  The recovery limit referred to in paragraph (3)(e) and subsection (7) at a particular time of a particular entity in respect of a trust and a particular taxation year of the trust is the amount, if any, by which the greater of

(a)  the total of all amounts each of which is

(i)  an amount received or receivable after 2000 and before the particular time

(A)  by the particular entity on the disposition of all or part of the particular entity’s interest as a beneficiary under the trust, or

(B)  by another entity (that was, when the amount became receivable, a specified party in respect of the particular entity) on the disposition of all or part of the specified party’s interest as a beneficiary under the trust,

(ii)  an amount (other than an amount described in subparagraph (i)) made payable by the trust after 2000 and before the particular time to

(A)  the particular entity because of the interest of the particular entity as a beneficiary under the trust, or

(B)  another entity (that was, when the amount became payable, a specified party in respect of the particular entity) because of the interest of the specified party as a beneficiary under the trust,

(iii)  an amount (other than an amount described in subparagraph (i) or (ii)) that is the fair market value of a benefit received or enjoyed, after 2000 and before the particular time, from or under the trust by

(A)  the particular entity, or

(B)  another entity that was, when the benefit was received or enjoyed, a specified party in respect of the particular entity, or

(iv)  the maximum amount that would be recoverable from the particular entity at the end of 2002 under subsection (2) (as it read in its application to taxation years that began before 2003) if the trust had tax payable under this Part at the end of 2002 and that tax payable exceeded the total of the amounts described in respect of the entity under paragraphs (2)(a) and (b) (as they read in their application to taxation years that began before 2003), except to the extent that the amount so recoverable is in respect of an amount that is included in the particular entity’s recovery limit because of subparagraph (i) or (ii), and

(b)  the total of all amounts each of which is the amount, when made, of a contribution to the trust before the particular time by the particular entity,

exceeds the total of all amounts each of which is

(c)  an amount recovered before the particular time from the particular entity in connection with a liability of the particular entity (in respect of the trust and the particular year or a preceding taxation year of the trust) that arose because of the application of subsection (3) (or the application of this section as it read in its application to taxation years that began before 2003),

(d)  an amount (other than an amount in respect of which this paragraph has applied in respect of any other entity) recovered before the particular time from a specified party in respect of the particular entity in connection with a liability of the particular entity (in respect of the trust and the particular year or a preceding taxation year of the trust) that arose because of the application of subsection (3) (or the application of this section as it read in its application to taxation years that began before 2003), or

(e)  the amount, if any, by which the particular entity’s tax payable under this Part for any taxation year in which an amount described in any of subparagraphs (a)(i) to (iii) was paid, became payable, was received, became receivable or was enjoyed by the particular entity exceeds the amount that would have been the particular entity’s tax payable under this Part for that taxation year if no such amount were paid, became payable, were received, became receivable or were enjoyed by the particular entity in that taxation year.

Determination of contribution amount — special case

(9)  If a contribution is made at any time by an entity to a trust as a consequence of a transaction that is, or as a consequence of a series of transactions or events that includes, the transfer at that time to the trust of a specified property, the amount of the contribution at that time is deemed, for the purposes of clause (2)(u)(ii)(C), subparagraph (7)(a)(ii) and subsection (8), to be the greater of

(a)  the amount, determined without reference to this subsection, of the contribution at that time, and

(b)  the amount that is the greatest fair market value of the specified property, or property substituted for it, in the period that

(i)  begins immediately after that time, and

(ii)  ends at the end of the third calendar year that ends after that time.

Where contributor becomes resident in Canada within 60 months after contributing

(10)  In applying this section at each specified time, in respect of a taxation year of a trust, that is before the particular time at which a contributor to the trust becomes resident in Canada within 60 months after making a contribution to the trust, the contribution is deemed to have been made at a time other than a non-resident time of the contributor if

(a)  in applying the definition "non-resident time" in subsection (1) as of each of those specified times, the contribution was made at a non-resident time of the contributor; and

(b)  in applying the definition "non-resident time" in subsection (1) immediately after the particular time, the contribution is made at a time other than a non-resident time of the contributor.

Application of ss. (12) and (13)

(11)  Subsections (12) and (13) apply to a trust or an entity in respect of a trust if

(a)  at any time property of a trust (referred to in this subsection and subsections (12) and (13) as the "original trust") is transferred or loaned, directly or indirectly, in any manner, to another trust (referred to in this subsection and subsections (12) and (13) as the "transferee trust");

(b)  the original trust

(i)  is deemed to be resident in Canada immediately before that time because of paragraph (3)(a),

(ii)  would be deemed to be resident in Canada immediately before that time because of paragraph (3)(a) if this section were read without reference to paragraph (a) of the definition "connected contributor" in subsection (1) and paragraph (a) of the definition "resident contributor" in that subsection,

(iii)  was deemed to be resident in Canada immediately before that time because of subsection (1) as it read in its application to taxation years that began before 2003, or

(iv)  would have been deemed to be resident in Canada immediately before that time because of subsection (1) as it read in its application to taxation years that began before 2003 if that subsection were read in that application without reference to subclause (b)(i)(A)(III) of that subsection; and

(c)  it is reasonable to conclude that one of the reasons the transfer or loan is made is to avoid or minimize a liability under this Part that arose, or that would otherwise have arisen, because of the application of subsection (3) (or the application of this section as it read in its application to taxation years that began before 2003).

Deemed resident contributor

(12)  The original trust described in subsection (11) (including a trust that has ceased to exist) is deemed to be, at and after the time of the transfer or loan referred to in that subsection, a resident contributor to the transferee trust for the purpose of applying this section in respect of the transferee trust.

Deemed contributor

(13)  An entity (including any entity that has ceased to exist) that is, at the time of the transfer or loan referred to in subsection (11), a contributor to the original trust, is deemed to be at and after that time

(a)  a contributor to the transferee trust; and

(b)  a connected contributor to the transferee trust, if at that time the entity is a connected contributor to the original trust.

Restricted property — exception

(14)  A particular property that is, or will be, at any time held, loaned or transferred, as the case may be, by an entity is not restricted property held, loaned or transferred, as the case may be, at that time by the entity if

(a)  the particular property is a share of a specified class (as defined by subsection 256(1.1)) of the shares of the capital stock of a corporation and

(i)  the particular property was acquired, as part of a transaction or series of transactions or events, from the corporation in exchange for, or as consideration for, property that is money only, and

(ii)  no other property (other than property that is identical to the particular property) was acquired by any entity as part of that transaction or series of transactions or events; or

(b)  the particular property is identified in prescribed form, containing prescribed information, filed, by or on behalf of the entity, with the Minister on or before the entity’s filing-due date (or another date that is acceptable to the Minister) for the entity’s taxation year that includes that time, and

(i)  the particular property (and property, if any, for which the particular property is, or is to be, substituted property) was not, and will not be, at any time acquired, held, loaned or transferred by the entity (or any entity with whom the entity does not at any time deal at arm’s length) in whole or in part for the purpose of permitting any change in the value of the property of a corporation (that is, at any time, a closely-held corporation) to accrue directly or indirectly in any manner whatever to the value of property held by a non-resident trust, and

(ii)  the Minister is satisfied that the particular property (and property, if any, for which it is, or is to be, substituted) is described by subparagraph (i).

Determining arm’s length dealing and related entities

(15)  In determining whether an entity and another entity are related to each other or deal at arm’s length with each other, a person referred to in section 251 includes an entity.

Anti-avoidance — 150 entities

(16)  In applying this section,

(a)  if it can reasonably be considered that one of the main reasons that an entity is at any time a shareholder of a corporation is to cause the condition in paragraph (b) of the definition "closely-held corporation" in subsection (1) to be satisfied in respect of the corporation, the condition is deemed not to have been satisfied at that time in respect of the corporation;

(b)  if it can reasonably be considered that one of the main reasons that an entity holds at any time an interest in a trust is to cause the condition in subclause (h)(i)(A)(I) of the definition "exempt foreign trust" in subsection (1) to be satisfied in respect of the trust, the condition is deemed not to have been satisfied at that time in respect of the trust; and

(c)  if it can reasonably be considered that one of the main reasons that a person holds at any time a property is to cause the condition in paragraph (c) of the definition "excluded property " in subsection (1) to be satisfied in respect of the property or an identical property held by any person, the condition is deemed not to have been satisfied at that time in respect of the property or the identical property.

(2)  Subsection (1) applies to trust taxation years that begin after 2002, except that

(a)  it also applies to taxation years that begin in 2001 and 2002 of a trust if the trust was created in 2001 and elects, in writing, to have section 94 of the Act, as enacted by subsection (1), apply to those taxation years by filing the election with the Minister of National Revenue on or before the trust’s filing-due date for the trust’s taxation year in which this Act is assented to;

(b)  it also applies to taxation years that begin in 2002 of a trust if the trust was created in 2002 and elects, in writing, to have section 94 of the Act, as enacted by subsection (1), apply to those taxation years by filing the election with the Minister of National Revenue on or before the trust’s filing-due date for the trust’s taxation year in which this Act is assented to;

(c)  any election or form referred to in section 94 of the Act, as enacted by subsection (1), that would otherwise be required to be filed before 120 days after the day on which this Act is assented to is deemed to have been filed with the Minister of National Revenue on a timely basis if it is filed with the Minister of National Revenue within 365 days after the day on which this Act is assented to;

(d)  the expression "if the entity is an individual and the trust arose on and as a consequence of the death of the individual, 18 months before the contribution time" in the definition "non-resident time" in subsection 94(1) of the Act, as enacted by subsection (1), is, in respect of contributions made before June 23, 2000, to be read as the expression "if the contribution time is before June 23, 2000, 18 months before the end of the trust’s taxation year that includes the contribution time";

(e)  if a trust elects, by notifying the Minister of National Revenue in writing on or before its filing-due date for its taxation year that includes the day on which this Act is assented to, that this paragraph apply, in applying section 94 of the Act, as enacted by subsection (1), in respect of the trust the definition "arm’s length transfer" in subsection 94(1) of the Act, as enacted by subsection (1), does not include a loan or other transfer of property that is identified in the election and that is made in a taxation year that begins before 2003;

(f)  if a trust ceased to exist before October 31, 2003, the definition "specified time" in subsection 94(1) of the Act, as enacted by subsection (1), is to be read in respect of the trust without reference to paragraph (b) of that definition;

(g)  unless a trust elects, by notifying the Minister of National Revenue in writing on or before its filing-due date for its taxation year that includes the day on which this Act is assented to, that this paragraph not apply, paragraphs (a) and (b) of the definition "closely-held corporation" in subsection 94(1) of the Act, as enacted by subsection (1), are, in respect of the trust for its taxation years that begin on or before ANNOUNCEMENT DATE, to be read as follows:

(a)  there are one or more classes of shares of its capital stock that are not a specified class within the meaning assigned by subsection 256(1.1); and

(b)  it is reasonable conclude that at that time

(i)  the shares of those classes (other than such a specified class) are held by at least 150 entities each of whom holds shares that have a total fair market value of at least $500, and

(ii)  the total number of issued and outstanding shares of a class (other than such a specified class) held by a particular entity or by any other entity with whom the particular entity does not deal at arm’s length is not more than 10% of the total number of the issued and outstanding shares of that class.

(h)  if a trust elects, by notifying the Minister of National Revenue in writing on or before its filing-due date for its taxation year that includes the day on which this Act is assented to, that this paragraph apply, paragraph (f) of the definition "eligible trust" in subsection 94(1) of the Act, as enacted by subsection (1), is, in respect of the trust for its taxation years that begin on or before ANNOUNCEMENT DATE, to be read as follows:

(f)  that at or before that time was a personal trust; or

(i)  subparagraph (b)(i) of the definition "exempt foreign trust" in subsection 94(1) of the Act, as enacted by subsection (1), is, for taxation years that begin on or before ANNOUNCEMENT DATE, to be read as follows:

(i)  the trust was created after the breakdown of a marriage or common-law partnership of two particular individuals to provide for the maintenance of a beneficiary under the trust who is a child of one of those particular individuals (which beneficiary is referred to in this paragraph as a "child beneficiary"),

(j)  unless a trust elects, by notifying the Minister of National Revenue in writing on or before its filing-due date for its taxation year that includes the day on which this Act is assented to, that this paragraph not apply, paragraphs (f) and (g) of the definition "exempt foreign trust" in subsection 94(1) of the Act, as enacted by subsection (1), are, in respect of the trust for its taxation years that begin on or before ANNOUNCEMENT DATE, to be read as follows:

(f)  a non-resident trust, if throughout the trust’s taxation year that includes the particular time

(i)  the trust is a trust governed by an employee benefit plan or is a trust (referred to in this paragraph as the "specified trust") described in paragraph (a.1) of the definition "trust" in subsection 108(1),

(ii)  the plan or the specified trust is maintained primarily for the benefit of non-resident individuals,

(iii)  the trust holds no restricted property, and

(iv)  the plan or the specified trust provides no benefits, other than benefits in respect of

(A)  services rendered to an employer by an employee of the employer, which employee was non-resident throughout the period during which the services were rendered,

(B)  services rendered to an employer by an employee of the employer, other than services that were primarily

(I)  rendered in Canada,

(II)  rendered in connection with a business carried on by the employer in Canada, or

(III)  a combination of services described in subclauses (I) and (II),

(C)  services rendered to an employer by an employee, of the employer, in a particular calendar month where

(I)  the employee was resident in Canada throughout no more than 60 of the 72 calendar months ending with the particular month, and

(II)  the employee became a member of, or a beneficiary under, the plan or the specified trust (or a similar plan or specified trust for which the plan or the specified trust was substituted) before the end of the calendar month following the month in which the employee became resident in Canada, or

(D)  any combination of services described by clauses (A) to (C);

(g)  a non-resident trust that, throughout the particular period that began at the time it was created and ends at the particular time,

(i)  has been operated exclusively for the purpose of administering or providing superannuation, pension, retirement or employee benefits,

(ii)  has

(A)  been maintained for the benefit of persons all or substantially all of whom are non-resident individuals, or

(B)  been maintained for the benefit of persons

(I)  the majority of whom are non-resident individuals, and

(II)  all or substantially all of whom are employed by one corporation or by two or more corporations each of which is related to each other, and

(iii)  has

(A)  been resident in a country (other than Canada) the laws of which impose an income or profits tax, and been exempt, under the laws of that country, from the payment of income tax and profits tax to the government of that country in recognition of the purposes for which the trust is operated, or

(B)  held cash or shares of the capital stock of one or more corporations referred to in subclause (ii)(B)(II) the value of which at any time in the particular period represents all or substantially all of the value of its property at that time, held no restricted property, and been governed by terms that provide, in respect of each individual who is a beneficiary under the trust and was resident in Canada at any time while employed by one of those corporations, for a transfer of property to be made by the trust to the individual in satisfaction of a right (other than a right under an arrangement to which subsection 7(2) or (6) applies) of the individual as a beneficiary under the trust only on or after the satisfaction of the conditions, if any, attached to that right;

(k)  the portion of subparagraph (b)(iii) of the definition "restricted property" in subsection 94(1) of the Act before clause (A), as enacted by subsection (1), is, for taxation years that begin on or before ANNOUNCEMENT DATE, to be read as follows:

(iii)  the amount of any payment (under a right to receive, in any manner whatever and from any entity, amounts in respect of the indebtedness), or the value of such a right, is, directly or indirectly, determined primarily by one or more of the following criteria in respect of one or more properties of the other entity (or an entity with which the other entity does not deal at arm’s length):

(l)  if a trust elects, by notifying the Minister of National Revenue in writing on or before its filing-due date for its taxation year that includes the day on which this Act is assented to, that this paragraph apply, in applying section 94 of the Act, as enacted by subsection (1), in respect of the trust the definition "specified fixed interest" in subsection 94(1) of the Act, as enacted by subsection (1), is, for its taxation years that begin on or before ANNOUNCEMENT DATE, to be read as follows:

"specified fixed interest", at any time of an entity in a trust, means a capital interest of the entity in the trust if

(a)  the interest includes, at that time, a right of the entity as a beneficiary under the trust to receive, at or after that time and directly from the trust, income or capital of the trust;

(b)  the interest was acquired, at or before that time, from the trust by any entity, in circumstances that are described by subparagraph (2)(g)(ii);

(c)  no right of the entity as a beneficiary under the trust to income or capital of the trust may cease to be a right of the entity (or the entity’s legal representatives) otherwise than because of

(i)  a gift of that interest made by the entity, or

(ii)  a transaction or event under which the entity (or the entity’s legal representatives) is entitled to receive an amount equal to the fair market value, immediately before that cessation, of the right; and

(d)  the trust was not at any time at or before that time a personal trust.

(m)  subparagraph 94(3)(a)(x), of the Act, as enacted by subsection (1), does not apply in determining on or before ANNOUNCEMENT DATE whether a foreign affiliate is a controlled foreign affiliate of a taxpayer;

(n)  paragraph 94(4)(b) of the Act, as enacted by subsection (1), is

(i)  subject to subparagraph (ii), for taxation years that begin on or before ANNOUNCEMENT DATE, to be read without reference to "the definition "Canadian partnership" in subsection 102(1),", and

(ii)  to be read as follows in its application to a transfer, by a trust, that occurred before February 28, 2004:

(b)  subsections 70(6) and 73(1), paragraph 107.4(1)(c) other than subparagraph (i) of it and paragraph (a) of the definition "mutual fund trust" in subsection 132(6);

(o)  paragraph 94(4)(f) of the Act, as enacted by subsection (1), is in its application to a transfer by a trust that occurred before February 28, 2004 to be read as follows:

(f)  determining the residency of the transferee in applying subparagraph (f)(ii) of the definition "disposition" in subsection 248(1);

(p)  if a trust was for its last taxation year that began before 2003 deemed by paragraph 94(1)(c) of the Act (as it read in its application to that taxation year) to be resident in Canada, paragraphs 94(4)(e) and (f) of the Act, as enacted by subsection (1), do not apply to the trust for the period that starts immediately before the end of that last taxation year and that ends immediately after the beginning of its first taxation year that begins after 2002, unless during that period a change in the trustees of the trust occurred;

(q)  if subsection (1) applies to a trust for its taxation years that begin in 2001 or in 2002,

(i)  paragraph 94(3)(e) of the Act, as enacted by subsection (1), subparagraph 94(8)(a)(iv) of the Act, as enacted by subsection (1), and subparagraphs 94(11)(b)(iii) and (iv) of the Act, as enacted by subsection (1), do not apply to the trust, and

(ii)  paragraphs 94(8)(c) and (d) of the Act, as enacted by subsection (1), and paragraph 94(11)(c) of the Act, as enacted by subsection (1), in their application to the trust are to be read without reference to the expression "(or the application of this section as it read in its application to taxation years that began before 2003)"; and

(r)  if a trust elects, by notifying the Minister of National Revenue in writing on or before its filing-due date for its taxation year that includes the day on which this Act is assented to, that this paragraph apply, paragraph (h) of the definition "exempt foreign trust" in subsection 94(1) of the Act, as enacted by subsection (1), is, in respect of the trust for its taxation years that begin on or before ANNOUNCEMENT DATE, to be read as follows:

(h)  a non-resident trust that is, at the particular time, an eligible trust

(i)  under which the interest of each beneficiary (in this subparagraph, determined without reference to subsection 248(25)) is, at all times that the interest exists during the trust’s taxation year that includes the particular time, a specified fixed interest of the beneficiary in the trust, if at the particular time

(A)  there are at least 150 beneficiaries each of whom holds a specified fixed interest in the trust with a fair market value of at least $500, and

(B)  where in respect of a class of interests as a beneficiary under the trust, the total fair market value of interests of that class held by a resident contributor or by any other entity with whom the resident contributor does not deal at arm’s length is more than 10% of the total fair market value of interests of that class, it is reasonable to conclude (determined by reference to all the circumstances including the terms of the trust, an intention, the laws of a country or the existence of an agreement, a memorandum, a letter of wishes or any other arrangement) that that resident contributor is a specified contributor to the trust, or

(ii)  under which the interest of each beneficiary under the trust is, at all times that the interest exists during the trust’s taxation year that includes the particular time, a specified fixed interest of the beneficiary in the trust, if in respect of the trust

(A)  a prescribed form and a copy of the terms of the trust that apply at the particular time have been filed with the Minister by or on behalf of the trust on or before its filing due date for its taxation year that includes the particular time (or a later date that is acceptable to the Minister), and

(B)   it is reasonable to conclude (determined by reference to all the circumstances including the terms of the trust, an intention, the laws of a country or the existence of an agreement, a memorandum, a letter of wishes or any other arrangement) that each resident contributor (other than an indirect contributor) to the trust at the particular time is a specified contributor to the trust at the particular time; or

18.  (1)  Section 94.1 of the Act is replaced by the following:

Foreign Investment Entities — Imputed Income

Definitions

94.1  (1)  The following definitions apply in this section and sections 94.2 to 94.4.

"arm’s length interest"
« participation sans lien de dépendance »

"arm’s length interest", at any time in respect of a taxpayer, means a particular participating interest, of the taxpayer, in a non-resident entity, if the following conditions are met:

(a)  it is reasonable to conclude that there are at least 150 persons each of which holds at that time participating interests in the non-resident entity that, at that time,

(i)  are identical to the particular participating interest, and

(ii)  have a total fair market value of at least $500;

(b)  the total of all amounts each of which is the fair market value, at that time, of the particular participating interest (or of a participating interest in the non-resident entity that is identical to the particular participating interest and that is held, at that time, by the taxpayer or an entity or individual with whom the taxpayer does not deal at arm’s length) does not exceed 10% of the total of all amounts each of which is the fair market value, at that time, of a participating interest in the non-resident entity that is held, at that time, by any entity or individual and that is identical to the particular participating interest; and

(c)  it is reasonable to conclude that participating interests in the non-resident entity that are identical to the particular participating interest

(i)  can normally be acquired by and sold by members of the public in the open market, or

(ii)  can be acquired from and sold to the non-resident entity by members of the public.

"beneficiary"
« bénéficiaire »

"beneficiary" has, except for the purpose of paragraph 94.2(11)(f), the meaning assigned by subsection 94(1).

"carrying value"
« valeur comptable »

"carrying value", at any time of property of a particular entity in respect of a taxpayer, means

(a)  the fair market value at that time of the property, if

(i)  the particular entity is an entity (referred to in this subparagraph as the "first entity") in which the taxpayer holds at that time a participating interest or is another entity in which the first entity holds at that time a direct or indirect interest,

(ii)  the taxpayer elects, by notifying the Minister in writing in the taxpayer’s return of income for the taxpayer’s taxation year that includes that time to have this paragraph apply to all of the particular entity’s property, and

(iii)  the property is valued for the purpose of the particular entity’s financial statements as of that time; and

(b)  in any other case, the amount at which the property is valued for the purpose of the particular entity’s financial statements as of that time.

"designated cost"
« coût designé »

"designated cost", to a taxpayer at any time of a participating interest held, at that time, by the taxpayer in a non-resident entity, is the amount determined by the formula

A + B + C + D + E + F - G

where

A is the cost amount to the taxpayer of the participating interest at that time (determined without reference to subsection 47(1), paragraphs 53(1)(m) and (q) and 53(2)(g) and (g.1) and section 143.2);

B is an amount included in respect of the participating interest because of this section in computing the taxpayer’s income for a taxation year that ends after 2002 and before that time;

C is, if the participating interest was an offshore investment fund property (as defined in subsection 94.1(1) as it read in its application to taxation years that began before 2003) of the taxpayer at the end of the taxpayer’s last taxation year that began before 2003, the total of all amounts each of which is the amount determined, in respect of the offshore investment fund property for that last taxation year, for B, C or D is the definition "designated cost" in subsection 94.1(2) as it read in its application to that last taxation year;

D is, if the participating interest was acquired by the taxpayer before 2003, and was not an offshore investment fund property (as defined in subsection 94.1(1) as it read in its application to taxation years that began before 2003) of the taxpayer at the end of the taxpayer’s last taxation year that began before 2003, the amount, if any, by which the fair market value of the participating interest at the end of that last taxation year exceeds the cost amount to the taxpayer of the participating interest at the end of that last taxation year;

E is, if one or more particular amounts has been made available by a person to another person after the last 2002 taxation year of the non-resident entity and before that time (whether by way of gift, loan, payment for a share, transfer of property at less than its fair market value or otherwise) in circumstances in which it can reasonably be concluded that one of the main reasons for making the particular amount available to the other person was to increase the value of the participating interest, the total of all amounts each of which is the amount, if any, by which each particular amount exceeds any increase in the cost amount to the taxpayer of the participating interest because of that particular amount;

F is, if the participating interest is acquired by the taxpayer after 2002, the amount, if any, by which the fair market value of the participating interest at the time it was so acquired exceeds the cost amount to the taxpayer of the participating interest at the time it was so acquired; and

G is, if the participating interest was last acquired by the taxpayer before 2003, and was not an offshore investment fund property (as defined in subsection 94.1(1) as it read in its application to taxation years that began before 2003) of the taxpayer at the end of the taxpayer’s last taxation year that began before 2003, the amount, if any, by which the cost amount to the taxpayer of the participating interest at the end of that last taxation year exceeds the fair market value of the participating interest at the end of that last taxation year.

"entity"
« entité »

"entity" includes an association, a corporation, a fund, a joint venture, an organization, a partnership, a syndicate and a trust, but does not include a natural person.

"exempt business"
« entreprise exempte »

"exempt business", of an entity at any time, means a business — other than a business carried on by the entity principally with entities or individuals with whom the entity does not deal at arm’s length, a business carried on by a trust that is an exempt foreign trust because of paragraph (f) or (h) of the definition "exempt foreign trust" in subsection 94(1), and a business carried on by the entity as a member, of a partnership, that is not a qualifying member of the partnership, or that would not be such a qualifying member if the entity were a person — that is carried on by the entity at that time and that, throughout the period (in its taxation year that includes that time) during which the business was carried on by the entity, is

(a)  carried on by the entity as a foreign bank, a trust company, a credit union, an insurance corporation or, if the entity is controlled by a taxpayer resident in Canada that is described in subparagraph 95(2.1)(a)(i), a trader or dealer in securities or commodities, the activities of which business are regulated under

(i)  the laws of

(A)  in the case of each country in which the business is carried on through a permanent establishment, as defined by regulation, that country, or a political subdivision of that country, and

(B)  the country, or the political subdivision of a country, under whose laws the entity is governed, and any of exists, was (unless the entity was continued in any jurisdiction) formed or organized, or was last continued,

(ii)  the laws of the country, or of a political subdivision of the country, in which country the business is principally carried on, or

(iii)  the laws (referred to in clause (B) as the "regulating laws") of a country that is a member of the European Union, or a political subdivision of that country, under whose laws another corporation is governed, and any of exists, was (unless the other corporation was continued in any jurisdiction) formed or organized, or was last continued, if

(A)  the entity is a corporation that is related to the other corporation, and

(B)  the business is principally carried on in a country, that is a member of the European Union, the laws of which, or the laws of a political subdivision of which, recognize the regulating laws; or

(b)  a business the principal purpose of which is to derive income from

(i)  the development and exploitation of Canadian resource property, of foreign resource property, of timber resource property or of any combination of them,

(ii)  the leasing or licensing of property that the entity or another entity related to the entity manufactured, produced, developed or purchased and developed,

(iii)  the leasing of machinery or equipment that is owned by the entity and that is used by the lessee principally for the purpose of manufacturing or processing goods,

(iv)  the sale of real or immovable property developed by the entity, an entity related to the entity, or a partnership of which the entity or the related entity is a qualifying member (or would be a qualifying member if the entity were a person),

(v)  the rental of real or immovable property held by the entity or a partnership of which the entity is a qualifying member (or would be a qualifying member if the entity were a person), if the management, maintenance, and other services in respect of the property are provided primarily by the employees of

(A)  the entity,

(B)  a corporation related to the entity,

(C)  the partnership,

(D)  a qualifying member (or an entity that would be a qualifying member if the entity were a person) of the partnership, or

(E)  any combination of employers described in clauses (A) to (D), or

(vi)  a combination of businesses described in subparagraphs (iv) and (v).

"exempt interest"
« participation exempte »

"exempt interest", of a taxpayer in a non-resident entity at any time, means a participating interest of the taxpayer, in the non-resident entity, if

(a)  the non-resident entity is throughout the period, in the non-resident entity’s taxation year that includes that time, during which the taxpayer held the participating interest,

(i)  a controlled foreign affiliate of the taxpayer,

(ii)  a qualifying entity that is a foreign affiliate (other than a controlled foreign affiliate) of the taxpayer in respect of which the taxpayer has a qualifying interest (within the meaning assigned by paragraph 95(2)(m)), or

(iii)  a partnership;

(b)  the taxpayer is, throughout its taxation year that includes that time, a financial institution (within the meaning assigned by subsection 142.2(1)) and the participating interest is, at that time,

(i)  a mark-to-market property (within the meaning assigned by subsection 142.2(1)), or

(ii)  a property described in an inventory of a business of the taxpayer, which inventory is valued, in computing the taxpayer’s income for that taxation year from the business, in accordance with section 1801 of the Income Tax Regulations;

(c)  the participating interest is throughout the period, in the non-resident entity’s taxation year that includes that time, during which the taxpayer held the participating interest, a right

(i)  under an agreement referred to in subsection 7(1), to acquire a share of the capital stock of the non-resident entity,

(ii)  granted by the non-resident entity, or another entity with which the non-resident entity does not deal at arm’s length, and

(iii)  acquired by the taxpayer, at a time when the taxpayer dealt at arm’s length with the entity that granted the right, solely because the taxpayer was an employee of an entity referred to in subparagraph (ii);

(d)  both

(i)  the non-resident entity is throughout the period, in the non-resident entity’s taxation year that includes that time, during which the taxpayer held the participating interest, an entity (other than a trust that is an exempt foreign trust because of paragraph (f) or (h) of the definition "exempt foreign trust" in subsection 94(1)) all or substantially all of the carrying value of the property of which is attributable to the carrying value of properties that are shares of the capital stock of a corporation (that is not a foreign investment entity) that employs the taxpayer or that is related to another corporation that employs the taxpayer, and

(ii)  an amount that is all or substantially all of the non-resident entity’s payable net accounting income for its taxation year that includes that time becomes payable by it to its interest holders in that taxation year, or within 120 days after the end of that taxation year, and the taxpayer’s share of that amount is included in computing the taxpayer’s income for the taxpayer’s taxation year that includes the time at which it became payable;

(e)  it is reasonable to conclude that the taxpayer has, at that time, no tax avoidance motive in respect of the participating interest, and

(i)  throughout the period, in the non-resident entity’s taxation year that includes that time, during which the taxpayer held the participating interest,

(A)  the participating interest is an arm’s length interest of the taxpayer,

(B)  the non-resident entity is resident in a country in which there is a prescribed stock exchange, and

(C)  participating interests, in the non-resident entity, that are identical to the participating interest are listed on a prescribed stock exchange, or

(ii)  both

(A)  throughout that period the non-resident entity

(I)  is governed by the laws of

1.  a country (other than a prescribed country) with which Canada has entered into a tax treaty, or

2.  a political subdivision of a country described by sub-subclause 1,

(II)  exists, was (unless the entity was continued in any jurisdiction) formed or organized, or was last continued, under those laws, and

(III)  while it is governed by the laws of a country, or of a political subdivision of a country, is under the tax treaty with that country resident in that country, and

(B)  either

(I)  throughout that period the participating interest is an arm’s length interest of the taxpayer, or

(II)  throughout that period the non-resident entity is, under the tax treaty with the United States of America, resident in the United States of America, and throughout the period, in the taxpayer’s taxation year that includes that time, during which the taxpayer is resident in Canada, the taxpayer is a citizen of the United States of America and is liable for and subject to income tax in the United States of America for that taxation year because of that citizenship; or

(f)  throughout the period, in the non-resident entity’s taxation year that includes that time, during which the taxpayer held the participating interest,

(i)  the participating interest is a share of the capital stock of a corporation resident in Canada,

(ii)  the participating interest would not be a participating interest, in the non-resident entity, if the definition "participating interest" were read without reference to paragraph (d) of that definition, and

(iii)  the participating interest is convertible into, exchangeable for, or a right to acquire only property that, if the conversion, exchange or right were exercised by the taxpayer at that time, would be a share, of the capital stock of a non-resident corporation, that is at that time an exempt interest (determined without reference to this paragraph) of the taxpayer.

"exempt property"
« bien exempt »

"exempt property", of a particular entity at any time, means, in determining whether a particular taxpayer’s interest in the particular entity is a participating interest in a foreign investment entity,

(a)  a property, of the particular entity, that is at that time used or held principally in a business (other than a business that is at that time an investment business carried on by the particular entity or by another entity related, otherwise than by reason of a right referred to in paragraph 251(5)(b), to the particular entity) carried on by the particular entity or another entity related (otherwise than by reason of a right referred to in paragraph 251(5)(b)) to the particular entity;

(b)  indebtedness owing by another entity (referred to in this paragraph as the "indebted entity"), if

(i)  each of the particular entity and the indebted entity is, at that time,

(A)  a foreign affiliate

(I)  of the particular taxpayer, and

(II)  in respect of which the particular taxpayer has a qualifying interest (within the meaning assigned by paragraph 95(2)(m)), or

(B)  a foreign affiliate

(I)  of another entity that is resident in Canada and of which the particular taxpayer is a controlled foreign affiliate, and

(II)  in respect of which the other entity referred to in subclause (I) has a qualifying interest (within the meaning assigned by paragraph 95(2)(m)), and

(ii)  the indebtedness would be excluded property (within the meaning of the definition "excluded property" in subsection 95(1)) of the particular entity, if

(A)  the taxpayer referred to in that definition were the particular taxpayer and the foreign affiliate of the taxpayer referred to in that definition were the particular entity, or

(B)  the taxpayer referred to in that definition were the other entity described in subclause (i)(B)(I) and the foreign affiliate of the taxpayer referred to in that definition were the particular entity; and

(c)  a particular property, if

(i)  the particular property (or other property for which the particular property is substituted) was acquired by the particular entity at any time within the 36-month period that ends at the particular time (or within any longer period that ends at the particular time that the Minister considers reasonable if the particular entity applies, in writing, to the Minister within 36 months after the property was acquired by the particular entity) because the particular entity

(A)  issued a debt or a participating interest in the particular entity,

(B)  disposed of property used principally in a business, other than an investment business, carried on by the particular entity or an entity related (otherwise than by reason of a right referred to in paragraph 251(5)(b)) to the particular entity,

(C)  disposed of a participating interest in another entity all or substantially all of the fair market value of the property of which is attributable to property used principally in a business, other than an investment business, carried on by the other entity or an entity related (otherwise than by reason of a right referred to in paragraph 251(5)(b)) to the other entity, or

(D)  accumulated income of the particular entity derived from a business, other than an investment business, carried on by the particular entity or an entity related (otherwise than by reason of a right referred to in paragraph 251(5)(b)) to the particular entity, and

(ii)  the issuance, disposition or accumulation referred to in subparagraph (i) was made or amassed for the purpose of

(A)  acquiring property to be used principally in, or making expenditures for the purpose of earning income from, a business, other than an investment business, carried on by the particular entity or an entity related (otherwise than by reason of a right referred to in paragraph 251(5)(b)) to the particular entity, or

(B)  acquiring a participating interest that is a significant interest in another entity all or substantially all of the fair market value of the property of which is attributable to property used principally in a business, other than an investment business, carried on by the other entity.

"exempt taxpayer"
« contribuable exempté »

"exempt taxpayer", for a taxation year of the taxpayer, means

(a)  a person whose taxable income for a period that ends at the end of the taxation year is exempt from tax under this Part because of subsection 149(1) (otherwise than because of paragraph 149(1)(q.1), (t) or (z));

(b)  an eligible trust (in this paragraph, as defined in subsection 94(1)) that is resident in Canada at the end of the taxation year and under which

(i)  the only beneficiaries that may for any reason receive, at any time and directly from the trust, any of the income or capital of the trust are persons that are qualifying investors (as defined in subsection 94(1)) in respect of the trust, and

(ii)  each such beneficiary at each time in the taxation year is a person whose taxable income, for the period that includes all of those times in the taxation year, is exempt from tax under this Part because of subsection 149(1) (otherwise than because of paragraph 149(1)(q.1), (t) or (z)); and

(c)  an individual (other than a trust) who, before the end of the taxation year, was resident in Canada for a period of, or periods the total of which is, not more than 60 months, but not including an individual who, before the end of the taxation year, was never non-resident;

"financial statements"
« états financiers »

"financial statements", of a particular entity for a particular taxation year of the entity and in respect of a taxpayer, means

(a)  the balance sheet and the statement of income of the particular entity, if

(i)  the particular entity is an entity (referred to in this subparagraph as the "first entity") in which the taxpayer holds, in the particular taxation year, a participating interest or is another entity in which the first entity has, in the particular taxation year, a direct or indirect interest,

(ii)  the taxpayer elects (in the taxpayer’s return of income for the taxpayer’s taxation year in which the particular taxation year ends) to have this paragraph apply in respect of the particular entity and the participating interest, and

(iii)  that balance sheet and statement of income would be prepared in accordance with generally accepted accounting principles used in Canada for the particular year or in accordance with generally accepted accounting principles that are substantially similar to those used in Canada if those principles did not require consolidation; and

(b)  in any other case, the balance sheet and statement of income of the particular entity, if that balance sheet and statement of income are prepared for the particular taxation year in accordance with generally accepted accounting principles used for the taxation year in Canada or in accordance with generally accepted accounting principles that are substantially similar to those used for the taxation year in Canada.

"foreign bank"
« banque étrangère »

"foreign bank" has the meaning assigned by subsection 95(1).

"foreign investment entity"
« entité de placement étrangère »

"foreign investment entity", at any time, means an entity that is, at that time, a non-resident entity unless,

(a)  at the end of its taxation year that includes that time, it is an exempt foreign trust (as defined in subsection 94(1)) because of any of paragraphs (a) to (e) and (g) of that definition or because of paragraph (f) of that definition (read without reference to clause (f)(iii)(B) of that definition);

(b)  at the end of that taxation year, the carrying value of all of its investment property is not greater than one-half of the carrying value of all of its property; or

(c)  throughout that taxation year, its principal undertaking was the carrying on of a business that is not an investment business.

"investment business"
« entreprise de placement »

"investment business", of an entity at any time, means a business (other than a business that is at that time an exempt business) carried on by the entity (including, for greater certainty, a business carried on by the entity as a member of a partnership) at that time, the principal purpose of which is to derive income or profits described in any of the following paragraphs:

(a)  income (including interest, dividends, rents, royalties or any similar return on investment or any substitute for such a return) from property;

(b)  income from the insurance or reinsurance of risks;

(c)  income from the factoring of trade accounts receivable; or

(d)  profits from the disposition of investment property.

"investment property"
« bien de placement »

"investment property", of a particular entity at any time, includes property of the particular entity that is at that time

(a)  a share of the capital stock of a corporation,

(b)  an interest as a member of a partnership,

(c)  an interest as a beneficiary under a trust,

(d)  an interest in any other entity,

(e)  indebtedness,

(f)  an annuity,

(g)  a commodity (or commodity future) purchased or sold, directly or indirectly in any manner whatever, on a commodities or commodities futures exchange,

(h)  real or immovable property,

(i)  a Canadian resource property or a foreign resource property,

(j)  currency,

(k)  intellectual property within the meaning of article 2 of the Convention Establishing the World Intellectual Property Organization done at Stockholm on July 14, 1967, as amended from time to time,

(l)  a derivative financial product, or

(m)  an interest, an option or a right in respect of property that is investment property because of any of paragraphs (a) to (l),

but does not include

(n)  except for the purpose of applying the definition "investment business" in this subsection or the definition "tracking entity" in subsection 94.2(1), property that is at that time exempt property of the particular entity,

(o)  except for the purpose of applying the definition "qualifying entity", property that is at that time

(i)  a share of the capital stock of the particular entity,

(ii)  a share of the capital stock of a corporation that is, throughout the period, in the particular entity’s taxation year that includes that time, during which the particular entity holds the share, a qualifying entity if the particular entity has at that time a significant interest in that qualifying entity or that qualifying entity has at that time a significant interest in the particular entity,

(iii)  an interest in a partnership that is, throughout the period, in the particular entity’s taxation year that includes that time, during which the particular entity is a member of the partnership, a qualifying entity if the particular entity has at that time a significant interest in that qualifying entity or that qualifying entity has at that time a significant interest in the particular entity, or

(iv)  indebtedness owing by an entity that is, throughout the period, in the particular entity’s taxation year that includes that time, during which the particular entity holds the indebtedness, a qualifying entity if the particular entity has at that time a significant interest in that qualifying entity or that qualifying entity has at that time a significant interest in the particular entity,

(p)  a commodity (referred to in this paragraph and paragraph (q) as an "exempt commodity") that is manufactured, produced, grown, extracted or processed by the particular entity or a person related (otherwise than because of a right referred to in paragraph 251(5)(b)) to the particular entity, and

(q)  a commodity future in respect of an exempt commodity.

"net accounting income"
« résultat comptable net »

"net accounting income", of an entity for a taxation year of the entity, means its net income, before income taxes and extraordinary items, for the year reported in its financial statements for the year.

"non-resident entity"
« entité non-résidente »

"non-resident entity", at any time, means

(a)  a corporation or trust that is non-resident at that time; and

(b)  any entity (other than a corporation or trust) that at that time

(i)  exists, was (unless the entity was continued in any jurisdiction) formed or organized, or was last continued under the laws of a country or a political subdivision of a country other than Canada, or

(ii)  is governed under the laws of a country or a political subdivision of a country other than Canada.

"participating interest"
« participation déterminée »

"participating interest", of a particular entity or individual in a non-resident entity, means a property that is

(a)  if the non-resident entity is a corporation, a share of the capital stock of the corporation;

(b)  if the non-resident entity is a trust, a specified interest in the trust;

(c)  if the non-resident entity is not a corporation or trust, an interest in the non-resident entity; and

(d)  under a contract, in equity or otherwise, either immediately or in the future and either absolutely or contingently, convertible into, exchangeable for, or a right to acquire, directly or indirectly,

(i)  a property described in any of paragraphs (a) to (c), or

(ii)  a property (other than money) the fair market value of which is determined primarily by reference to the fair market value of a property described in any of paragraphs (a) to (c).

"payable net accounting income"
« résultat comptable net à payer »

"payable net accounting income", of an entity for a taxation year of the entity, means its net income, after income taxes and extraordinary items, for the year reported in its financial statements for the year.

"qualifying entity"
« entité admissible »

"qualifying entity", in a period, means a particular entity that is a corporation or partnership all or substantially all of the carrying value of the property of which is, throughout the period, attributable to the carrying value of particular property that is, throughout the portion of the period that the particular property is property of the particular entity,

(a)  property other than investment property;

(b)  investment property that is a participating interest in or debt issued by another entity if, throughout the portion of the period that the participating interest or debt is property of the particular entity,

(i)  the principal undertaking of the other entity is the carrying on of a business that is not an investment business, and

(ii)  either

(A)  the particular entity has a significant interest in the other entity, or

(B)  the particular entity

(I)  actively participates in or exercises significant influence over the governance or the management of that other entity, directly or indirectly, by reason of its status as a holder of a significant number of participating interests in that other entity (when compared to the number of participating interests held by each other holder of interests in the corporation) or by reason of an agreement in writing between the particular entity and one or more other holders of a significant number of participating interests in that other entity, or

(II)  carries out a plan of action that it has established for the purpose of obtaining its objective of actively participating in or exercising significant influence over the governance or the management of that other entity, directly or indirectly, by reason of its status as a holder of a significant number of participating interests in that other entity (when compared to the number of participating interests held by each other holder of interests in the particular entity) or by reason of an agreement in writing between the particular entity and one or more other holders of a significant number of participating interests in that other entity;

(c)  investment property in respect of which the particular entity establishes that the property or proceeds from the disposition of the property is to be used by the particular entity for the purpose of acquiring property described in paragraph (a) or (b); or

(d)  investment property that is a particular property held by the particular entity if

(i)  the particular property (or other property for which the particular property is substituted property) was last acquired by the particular entity within 36 months before the end of the period (or within any greater number of months that the Minister considers reasonable if the particular entity applies, in writing, to the Minister within the 36 months after the property was acquired by the particular entity),

(ii)  the particular property was so acquired by the particular entity because it

(A)  issued a debt, or a participating interest in it,

(B)  disposed of property described in any of paragraphs (a) to (c), or

(C)  accumulated its income, and

(iii)  the issuance, disposition or accumulation referred to in subparagraph (ii) was made or amassed for the purpose of acquiring property that, if owned by the particular entity, would be property described in any of paragraphs (a) to (c).

"significant interest"
« participation notable »

"significant interest", of a particular entity in another entity at any particular time, means

(a)  if the other entity is a corporation, a share of the capital stock of the corporation, if at the particular time the particular entity or the particular entity together with entities related (otherwise than by reason of a right referred to in paragraph 251(5)(b)) to the particular entity holds shares of the capital stock of the corporation

(i)  that would give the particular entity, or the particular entity together with those related entities, 25% or more of the votes that could be cast under all circumstances at an annual meeting of shareholders of the corporation if the meeting were held at the particular time, and

(ii)  that have a fair market value of 25% or more of the fair market value of all of the issued and outstanding shares of the corporation;

(b)  if the other entity is a partnership, an interest of the particular entity as a member of the partnership, if at the particular time the particular entity, or the particular entity together with entities related (otherwise than by reason of a right referred to in paragraph 251(5)(b)) to the particular entity, holds interests as a member of the partnership that have a fair market value of 25% or more of the fair market value of all membership interests in the partnership; and

(c)  if the other entity is a trust, an interest as a beneficiary under the trust, where at the particular time

(i)  the only beneficiaries that may for any reason receive, at any time and directly from the trust, any of the income or capital of the trust are persons that are qualifying investors (as defined in subsection 94(1)) in respect of the trust, and

(ii)  the particular entity, or the particular entity together with entities related (otherwise than by reason of a right referred to in paragraph 251(5)(b)) to the particular entity, holds such interests under the trust that have a fair market value of 25% or more of the fair market value of all the interests as beneficiaries under the trust.

"specified interest"
« participation désignée »

"specified interest", at any time of an entity or individual in a trust, means an interest of the entity or individual as a beneficiary under the trust if

(a)  the trust is at that time an exempt foreign trust because of paragraph (f) or (h) of the definition "exempt foreign trust" in subsection 94(1); or

(b)  the entity or individual may for any reason receive as a beneficiary under the trust, at or after that time, any of the income or capital of the trust directly from the trust, unless

(i)  the entity or individual would at that time be a successor beneficiary (as defined in subsection 94(1)) under the trust if the reference in the definition "successor beneficiary" in that subsection to a contributor did not include each contributor whose total amount of contributions to the trust is 10% or less of the total of all amounts each of which was the amount, at the time it was received by the trust, of a contribution made to the trust, or

(ii)  every amount of income and capital of the trust that the entity or individual may receive at or after that time depends on the exercise by any entity or individual of, or the failure by any entity or individual to exercise, a discretionary power.

"specified party"
« tiers déterminé »

"specified party" in respect of a particular individual or particular entity, as the case may be, means another individual or other entity that does not deal at arm’s length with the particular individual or the particular entity, as the case may be.

"taxation year"
« année d’imposition »

"taxation year", of a non-resident entity that is not a corporation or an individual, means

(a)  in respect of a business or property of the non-resident entity for which the accounts of the non-resident entity are ordinarily made up, the period that would be determined under section 249.1 in respect of the non-resident entity if the non-resident entity were a corporation; and

(b)  in any other case, a calendar year.

Rules of application

(2)  For the purposes of applying this section and sections 94.2 to 94.4 in respect of a particular participating interest, in a particular non-resident entity, held by a taxpayer in a particular taxation year of the taxpayer (and in respect of any other participating interests, in the particular non-resident entity, that are identical to the particular participating interest and that are held by the taxpayer in the particular taxation year),

(a)  in determining whether the particular non-resident entity is a foreign investment entity, if the financial statements of an entity (referred to in this paragraph as the "first entity") for a taxation year (referred to in this paragraph as the "specified year") of the first entity reflect property, indebtedness, income or losses of another entity,

(i)  the business and non-business activities for the specified year carried on by the other entity, the net accounting income for the specified year determined for the other entity from those activities, and the property and indebtedness for the specified year owned by or owed by, as the case may be, the other entity are deemed for the specified year to be carried on by, determined for, owned by or owed by, as the case may be, the first entity, and

(ii)  an exempt business of the other entity at any time in the specified year is, if it is a business the activities of which are deemed by subparagraph (i) to be carried on by the first entity, deemed to be an exempt business of the first entity at that time in the specified year;

(b)  generally accepted accounting principles used, for a taxation year, in the United States of America or in countries that are members of the European Union are substantially similar to those used in Canada in respect of that taxation year;

(c)  in determining the designated cost to the taxpayer of the participating interest at any time in the particular taxation year,

(i)  if the particular participating interest is a specified interest in a trust that is an exempt foreign trust (in this paragraph as defined by subsection 94(1)) because of paragraph (f) of that definition, the cost at that time to the taxpayer of the particular participating interest is deemed to be the greater of

(A)  the cost, determined without reference to this paragraph, at that time to the taxpayer of the particular participating interest, and

(B)  the total of all amounts each of which is the fair market value, immediately before it was acquired by the trust, of a property that is held by the trust at that time and that may be reasonably be considered to be held for the purpose of satisfying the rights (other than a right under an arrangement to which subsection 7(2) or (6) applies) of the taxpayer in respect of the particular participating interest, and

(ii)  if the particular participating interest is an interest in a trust that is not an exempt foreign trust, the designated cost to the taxpayer of the particular participating interest is deemed to be the greater of

(A)  the designated cost, determined without reference to this paragraph, at that time to the taxpayer of the particular participating interest, and

(B)  the total of all amounts each of which is

(I)  the fair market value, at that time, of restricted property (in this subparagraph, within the meaning of section 94) that is held at that time by the trust and that may reasonably be considered to be held for the purpose of satisfying the rights (whether immediate or future, whether absolute or contingent or whether conditional on or subject to the exercise of any discretion by any entity) of the taxpayer in respect of the particular participating interest, or

(II)  the cost, at that time, to the trust of each property (other than restricted property) that is held by the trust for the purpose of satisfying the rights (whether immediate or future, whether absolute or contingent or whether conditional on or subject to the exercise of any discretion by any entity) of the taxpayer in respect of the particular participating interest;

(d)  the reference in subsections (4) and 94.3(4) to "as income from property from a property that is the participating interest" is to be read as a reference to "as income from property from a property that is a source outside Canada that is the participating interest", if the taxpayer is a trust and the portion of the net accounting income of the particular non-resident entity, from sources outside Canada, for its last taxation year that ends in the particular taxation year exceeds 90% of the total net accounting income of the particular non-resident entity for that last taxation year;

(e)  in determining whether the principal undertaking of an entity is, in a taxation year of the entity, the carrying on of a business that is not an investment business,

(i)  subject to subparagraphs (ii) and (iii), that determination is to be by reference to the facts and circumstances including the fair market value of assets used in the activities carried on, during the entity’s taxation year, by the entity, the amount of time spent by the entity’s employees in carrying out those activities, the amount of expenditures incurred by the entity in respect of those activities and the revenue derived by the entity from those activities,

(ii)  subject to subparagraph (iii), where the taxpayer has, by notifying the Minister in writing in the taxpayer’s return of income for the particular taxation year, elected to have this subparagraph apply in respect of the entity, the principal undertaking of the entity for the taxation year of the entity is deemed to be the carrying on of a business that is

(A)  an investment business if the total net accounting income of the entity, for the entity’s taxation year, derived from investment property (other than investment property used or held in the course of carrying on an investment business) and from investment businesses is equal to or greater than the total net accounting income of the entity for the entity’s taxation year derived from businesses (other than investment businesses), and

(B)  not an investment business if the total net accounting income of the entity for the entity’s taxation year derived from investment property (other than investment property used or held in the course of carrying on an investment business) and from investment businesses is less than the total net accounting income of the entity for the entity’s taxation year derived from businesses (other than investment businesses) carried on by the entity in the entity’s taxation year, and

(iii)  if the Minister sends a written demand to the taxpayer requesting additional information for the purpose of enabling the Minister to determine whether the principal undertaking of the entity is in the entity’s taxation year the carrying on of an investment business, and information satisfactory to the Minister to make the determination is not received by the Minister within 60 days (or within any longer period that is acceptable to the Minister) after the Minister sends the demand, the principal undertaking of the entity is deemed to be the carrying on of an investment business;

(f)  in determining whether an entity or natural person and another entity or natural person are related to each other or deal at arm’s length with each other, a person referred to in section 251 includes an entity;

(g)  in applying subparagraph (e)(i) of the definition "exempt interest" in subsection (1), if the particular non-resident entity is not a corporation, a partnership or a trust, it is deemed not to be resident in a particular country, unless

(i)  the particular country is a country other than a prescribed country,

(ii)  the particular non-resident entity is governed, and any of exists, was (unless the entity was continued in any jurisdiction) formed or organized, or was last continued, under the laws of the particular country or of a political subdivision of the particular country, and

(iii)  the particular non-resident entity is liable, under the laws of the particular country, to pay an income or profits tax imposed by the government of the particular country on all of the particular non-resident entity’s income, profits or gains;

(h)  subject to paragraph (i), a non-resident entity is deemed to be a controlled foreign affiliate of the taxpayer throughout the period that begins at the earliest time, in the taxpayer’s taxation year in the return of income for which the taxpayer elects in prescribed form to treat the non-resident entity as a controlled foreign affiliate of the taxpayer (referred to in this paragraph as the "taxpayer’s election year"), at which the non-resident entity is a foreign affiliate of the taxpayer and that ends at the earliest subsequent time at which it is not a foreign affiliate of the taxpayer, if

(i)  at any time in the taxpayer’s election year

(A)  the taxpayer holds a participating interest in the non-resident entity and a taxation year of the non-resident entity ends (or the first taxation year of the non-resident entity begins), or

(B)  a controlled foreign affiliate of the taxpayer holds a participating interest in the non-resident entity, a taxation year of the controlled foreign affiliate ends, and a taxation year of the non-resident entity ends (or the first taxation year of the non-resident entity begins) in that taxation year of the controlled foreign affiliate,

(ii)  the non-resident entity is, at the end of its taxation year referred to in subparagraph (i), a foreign affiliate of the taxpayer in respect of which the taxpayer has a qualifying interest (within the meaning assigned by paragraph 95(2)(m)), and

(iii)  the taxpayer has not made any other election under this paragraph in respect of the non-resident entity;

(i)  an election made by the taxpayer (or where the taxpayer is a partnership, by an entity that was at any time a member of the taxpayer) under paragraph (h) is, other than for the purposes of applying this paragraph and subparagraph (h)(iii), deemed never to have been made, if

(i)  the Minister sends a written demand to the taxpayer requesting additional information for the purpose of enabling the Minister to determine an amount that would, if this Act were read without reference to this paragraph, be required to be added or deducted (otherwise than under subsection 104(13)) in computing the taxpayer’s income for the year because of the application of section 91 and an election under paragraph (h) in respect of a foreign affiliate, and

(ii)  information satisfactory to the Minister to make the determination is not received by the Minister within 60 days (or within any longer period that is acceptable to the Minister) after the Minister sends the demand;

(j)  if the taxpayer has, by notifying the Minister in writing in the taxpayer’s return of income for the particular taxation year, elected to have this paragraph apply in respect of the particular participating interest, the taxpayer files with that return of income prescribed information in prescribed form, an entity (referred to in this paragraph as the "specified entity") has a significant interest in another entity that is a corporation, partnership or trust, the particular non-resident entity is the specified entity or has, directly or indirectly, an interest in the specified entity, and the financial statements of the specified entity do not reflect property or indebtedness of the other entity, in determining only whether the particular non-resident entity is a foreign investment entity, and where the taxpayer so stipulates in that election, whether the particular non-resident entity is a qualifying entity

(i)  each of the following is deemed to be nil:

(A)  the carrying value of each

(I)  participating interest held, at the time (referred to in this paragraph as the "specified time") that is the end of the particular non-resident entity’s last taxation year that ends in the particular taxation year, by the specified entity in the other entity, and

(II)  debt owing at the specified time to the specified entity by the other entity (other than a debt acquired in the ordinary course of a business that is not at the specified time an investment business carried on by the specified entity), and

(B)  the net accounting income of the specified entity at the specified time derived from property of the specified entity the carrying value of which is deemed to be nil under clause (A),

(ii)  each property that is (or that is deemed by this subparagraph in respect of the particular participating interest to be) at the specified time property of the other entity (other than a debt owing to the other entity by the specified entity where the other entity and the specified entity are related to each other at the specified time) and that is valued for the purpose of the other entity’s financial statements for its taxation year that includes the specified time (or deemed by this subparagraph to have a carrying value to the other entity) is deemed to be at the specified time property of the specified entity and is deemed to have at the specified time a carrying value to the specified entity equal to the amount determined by the formula

A x B/C

where

A is the carrying value at the specified time to the other entity of the property,

B is the total of all amounts each of which is

(A)  the fair market value at the specified time of a participating interest in the other entity held at the specified time by the specified entity, and

(B)  the fair market value at the specified time of a debt (other than a debt acquired in the ordinary course of a business that is not an investment business carried on by the specified entity) that the other entity owes at the specified time to the specified entity, and

C is the total of all amounts each of which is

(A)  the fair market value at the specified time of a participating interest in the other entity held at the specified time by an individual or an entity, and

(B)  the fair market value at the specified time of a debt owing at the specified time by the other entity to a holder of a participating interest in the other entity (other than a debt acquired in the ordinary course of a business that is not an investment business carried on by a holder of a participating interest in the other entity),

(iii)  the specified entity is deemed

(A)  to have carried on the proportion obtained for the formula B/C in subparagraph (ii) (in respect of the specified entity and the other entity) of the activities carried on at the specified time by the other entity in which it used the property referred to in subparagraph (ii), and

(B)  to have that proportion of the net accounting income of the other entity for the period in the taxation year of the other entity ending at the specified time that was derived from the activities referred to in clause (A), and

(iv)  an exempt business of the other entity at any time in the particular non-resident entity’s last taxation year that ends in the particular taxation year is, to the extent that its activities are deemed by subparagraph (iii) to be carried on by the specified entity, deemed to be an exempt business of the specified entity at that time in that last year;

(k)  subject to paragraphs (m) and (n), the taxpayer has a tax avoidance motive in respect of the particular participating interest (and any participating interests of the taxpayer in the particular non-resident entity that are identical to the particular participating interest), only if it is reasonable to conclude that the main reasons for the taxpayer acquiring, holding or having the particular participating interest include

(i)  the derivation of a benefit the value of which can reasonably be attributed principally, directly or indirectly, to income derived from investment property, to profits or gains from the disposition of investment property, or to an increase in value of investment property, and

(ii)  the deferral or reduction of the amount of tax payable on that income or those profits or gains;

(l)  in applying paragraph (k) in respect of the particular participating interest, the factors to be considered in determining the existence of a tax avoidance motive include

(i)  the nature, organization and operation of

(A)  the particular non-resident entity,

(B)  any foreign investment entity in which the particular non-resident entity or a specified party in respect of the particular non-resident entity has a direct or indirect interest, and

(C)  any foreign investment entity in which the taxpayer or a specified party in respect of the taxpayer has a direct or indirect interest,

(ii)  the form of, and the terms and the conditions governing, the direct or indirect interests referred to in subparagraph (i),

(iii)  the extent to which and the time at which the particular non-resident entity, or an entity in which a direct or indirect interest referred to in subparagraph (i) is held, is subject to an income or profits tax on its income, profits and gains,

(iv)  the extent to which and the time at which the taxpayer, or an entity or individual that holds a direct or indirect interest referred to in subparagraph (i), is subject to an income or profits tax on the taxpayer’s or entity’s, as the case may be, share of the income, profits and gains of the entity in which the direct or indirect interest is held, and

(v)  the amount of tax that would have been payable by the taxpayer under this Part had the taxpayer earned the income or realized the profits or gains in respect of the investment property referred to in subparagraph (k)(i) at the time that the income was earned, or the profits or gains were realized, by the entities that owned or held the investment property;

(m)  the taxpayer does not have a tax avoidance motive in respect of the particular participating interest held by the taxpayer at any time in the particular taxation year if an amount that is all or substantially all of the payable net accounting income

(i)  of the particular non-resident entity for each of its taxation years that ends in the particular taxation year becomes payable by it to its interest holders in, or within 120 days after, that taxation year of the particular non-resident entity, and the taxpayer’s share of that amount is included in computing the taxpayer’s income for the taxpayer’s taxation year that includes the time at which the amount became payable, and

(ii)  of each other foreign investment entity, in which the particular non-resident entity has a direct or indirect interest, for each of the other entity’s taxation years that ends in the particular taxation year becomes payable by the other entity to its interest holders in, or within 120 days after, that taxation year of the other entity, and the particular non-resident entity’s share of that amount is included in computing its payable net accounting income for its taxation year that includes the time at which the amount became payable;

(n)  the taxpayer does not have a tax avoidance motive in respect of the particular participating interest, if throughout the period, in the particular taxation year, during which the taxpayer held the participating interest the particular non-resident entity was a "Regulated Investment Company" for the purposes of sections 851(b) and 852(a) of the United States Internal Revenue Code of 1986 or a "Real Estate Investment Trust" for the purposes of sections 856(c) and 857(b) of that Code and the taxpayer includes, in computing the taxpayer’s income for the particular taxation year, the amount of payable net accounting income that became payable by the particular non-resident entity to the taxpayer in the particular taxation year;

(o)  in applying paragraph (d) of the definition "exempt interest" in subsection (1), paragraphs (m) and (n), the definition "mark-to-market formula" in subsection 94.2(1), and subsection 94.4(2), an amount is deemed not to have become payable at any time to an entity or individual, as the case may be, unless it was paid on or before that time to the entity or individual, as the case may be, or the entity or individual, as the case may be, was entitled on or before that time to enforce payment of it;

(p)  the definition "exempt property" in subsection (1) does not apply in respect of a property of the particular non-resident entity if the Minister sends a written demand to the taxpayer requesting additional information for the purpose of enabling the Minister to determine whether property is an exempt property, and information satisfactory to the Minister to make the determination is not received by the Minister within 60 days (or within any longer period that is acceptable to the Minister) after the Minister sends the demand;

(q)  paragraphs (a) to (c) of the definition "foreign investment entity" in subsection (1) do not apply in respect of the particular non-resident entity if the Minister sends a written demand to the taxpayer requesting additional information for the purpose of enabling the Minister to determine whether the particular non-resident entity is a foreign investment entity, and information satisfactory to the Minister to make the determination is not received by the Minister within 60 days (or within any longer period that is acceptable to the Minister) after the Minister sends the demand;

(r)  the definition "qualifying entity" in subsection (1) does not apply if the Minister sends a written demand to the taxpayer requesting additional information for the purpose of enabling the Minister to determine whether an entity is a qualifying entity, and information satisfactory to the Minister to make the determination is not received by the Minister within 60 days (or within any longer period that is acceptable to the Minister) after the Minister sends the demand;

(s)  if at any time a taxpayer has a participating interest in a particular foreign investment entity and the taxpayer has at that time a participating interest (referred to in this paragraph as the "indirect participating interest") in another non-resident entity solely because the particular foreign investment entity has at that time a participating interest in that other non-resident entity, then the indirect participating interest is deemed (other than in applying this paragraph) not to be a participating interest of the taxpayer at that time;

(t)  if the taxpayer is an authorized foreign bank, the taxpayer is deemed for the purposes of subsections 94.1(4), 94.2(5) to (8) and (12), 94.3(4) and 94.4(2) to be resident in Canada throughout the particular taxation year;

(u)  the dispositions, if any, in the particular taxation year of the particular participating interest and any participating interests of the taxpayer in the particular non-resident entity that are identical to the particular participating interest are deemed to occur in the order in which those participating interests were acquired (determined without reference to any other provision of this Act) by the taxpayer; and

(v)  if it can reasonably be considered that one of the main reasons that an entity or individual holds at any time on or after ANNOUNCEMENT DATE a participating interest in a non-resident entity is to cause the condition in paragraph (a) of the definition "arm’s length interest" in subsection (1) to be met at that time in respect of the participating interest or an identical participating interest held by any entity or individual, the condition is deemed not to have been satisfied at that time in respect of the participating interest or identical participating interest.

Conditions for application of tax regime for foreign investment entities

(3)  This subsection applies to a taxpayer for a particular taxation year of the taxpayer in respect of a participating interest in a non-resident entity if

(a)  the taxpayer is not an exempt taxpayer for the particular taxation year;

(b)  the participating interest is held by the taxpayer at the end of a taxation year of the non-resident entity that ends in the particular taxation year;

(c)  at the end of that taxation year of the non-resident entity it is a foreign investment entity; and

(d)  at the end of that taxation year of the non-resident entity the taxpayer’s participating interest is not an exempt interest of the taxpayer.

Income inclusion — imputed income regime

(4)  If subsection (3) or 94.2(9) applies to a taxpayer resident in Canada for a taxation year of the taxpayer in respect of a participating interest and subsections 94.2(3) and 94.3(3) do not apply to the taxpayer for the taxation year in respect of the participating interest, then this subsection applies to the taxpayer for the taxation year in respect of the participating interest and there shall be included (as income from property from a property that is the participating interest) in computing the taxpayer’s income for that taxation year the total of all amounts each of which is the amount, in respect of each month in that taxation year, at the end of which month the taxpayer holds the participating interest, determined by the formula

A x B

where

A is the designated cost, to the taxpayer of the participating interest, at the end of the month; and

B is the quotient obtained when the rate of interest prescribed, in respect of amounts required by this Act to be paid by the Minister, for the quarterly period that includes that month is divided by 12.

Loss on disposition of interest — reconciliation

(5)  Notwithstanding any other provision of this Act, if a taxpayer disposes, at a particular time in a particular taxation year, of a participating interest of the taxpayer and subsection (4) applied for the purpose of computing the taxpayer’s income, for any taxation year of the taxpayer that began on or before the particular time, in respect of the participating interest

(a)  there may be deducted in computing the taxpayer’s income for the particular taxation year the lesser of

(i)  the amount, if any, by which

(A)  the total of all amounts each of which is an amount included in respect of the participating interest because of subsection (4) in computing the taxpayer’s income for

(I)  the particular taxation year, or

(II)  any taxation year, of the taxpayer, that ends before the particular taxation year and after the taxpayer last acquired the participating interest

exceeds

(B)  the total of all amounts each of which is an amount in respect of the participating interest that is deductible under paragraph 94.4(2)(a) in computing the taxpayer’s income for any of those taxation years, and

(ii)  the amount that would, if this Act were read without reference to paragraph (b) and subparagraph 40(2)(g)(i), be the taxpayer’s capital loss for the particular taxation year from the disposition of the participating interest; and

(b)  the taxpayer’s capital loss for the taxation year from the disposition of the participating interest is the amount, if any, by which

(i)  the amount that would, if this Act were read without reference to this paragraph and subparagraph 40(2)(g)(i), be the taxpayer’s capital loss for the particular taxation year from the disposition of the participating interest

exceeds

(ii)  the amount in respect of the participating interest deducted by the taxpayer under paragraph (a) in computing the taxpayer’s income for the particular taxation year.

Foreign Investment Entities — Mark-to-Market

Definitions

94.2  (1)  The definitions in subsection 94.1(1), and the following definitions, apply in this section.

"deferral amount"
« montant de report »

"deferral amount", of a taxpayer in respect of a participating interest in an entity, means, subject to subsections (6) and (14) to (18), the positive or negative amount determined by the formula

A x (B - C)

where

A is

(a)  if, immediately before the beginning of the taxpayer’s first taxation year that began after 2002, the interest was capital property held by the taxpayer, 1/2, and

(b)  in any other case, 1;

B is

(a)  the fair market value of the interest at the first time in a particular taxation year of the taxpayer at which the taxpayer was resident in Canada where

(i)  the taxpayer held the interest at the end of the preceding taxation year,

(ii)  at the end of that preceding year, the taxpayer was resident in Canada or the interest was taxable Canadian property,

(iii)  subsection (4) did not apply to the taxpayer for the purpose of computing the taxpayer’s income in respect of the interest for any preceding taxation year, and

(iv)  subsection (4) applies to the taxpayer for the purpose of computing the taxpayer’s income in respect of the interest for the particular year, and

(b)  nil in any other case; and

C is

(a)  if paragraph (a) of the description of B applies in respect of the interest, the cost amount of the property immediately before the first time in the particular year at which the taxpayer was resident in Canada, and

(b)  nil in any other case.

"gross-up factor"
« facteur de majoration »

"gross-up factor", for a particular deferral amount, means

(a)  if the amount determined for A in the definition "deferral amount" in respect of the particular deferral amount is 1/2, 2; and

(b)  in any other case, 1.

"mark-to-market formula"
« formule d’évaluation à la valeur du marché »

"mark-to-market formula", for a taxation year of a taxpayer in respect of a participating interest of the taxpayer in a non-resident entity, means the formula

(A + B + C + D) - (E + F + G)

where

A is the total of all amounts each of which is the taxpayer’s proceeds from a disposition of the participating interest in the taxation year (other than a disposition deemed to arise because of subsection 128.1(4) or 149(10));

B is

(a)  if the taxpayer held the participating interest at the end of the taxation year, the fair market value (determined before taking into account any amount payable at the end of the taxation year from the non-resident entity in respect of the participating interest) at that time of the participating interest, and

(b)  in any other case, nil;

C is the total of all amounts (other than an amount to which the description of A applies) received by the taxpayer in the taxation year from the non-resident entity in respect of the participating interest;

D is

(a)  the taxpayer’s deferral amount in respect of the participating interest, if

(i)  the deferral amount is a positive amount,

(ii)  the participating interest was not disposed of by the taxpayer in the taxation year, and

(iii)  the taxpayer so elects in respect of the participating interest in prescribed form filed with the Minister not later than the taxpayer’s filing-due date for the taxation year,

(b)  the taxpayer’s deferral amount in respect of the participating interest if

(i)  the taxpayer disposed of the participating interest in the taxation year, and

(ii)  no election was made under paragraph (a) in respect of the participating interest by the taxpayer for a preceding taxation year, and

(c)  in any other case, nil;

E is the total of all amounts each of which is the cost at which the taxpayer acquired the participating interest in the taxation year (otherwise than because of an acquisition deemed to arise because of subsection 128.1(4) or 149(10));

F is

(a)  if the taxpayer held the participating interest at the beginning of the taxation year, the fair market value at that time of the participating interest (determined before taking into account any amount payable at that time from the non-resident entity in respect of the participating interest), and

(b)  in any other case, nil; and

G is

(a)  if the participating interest was deemed by paragraph (11)(b) to be a participating interest in an entity for the preceding taxation year of the taxpayer, the amount that would be deductible under subparagraph (4)(a)(ii) in computing the taxpayer’s income for that preceding taxation year in respect of the participating interest if that subparagraph were read without reference to clause (4)(a)(ii)(A), and

(b)  in any other case, nil.

"readily obtainable fair market value"
« juste valeur marchande vérifiable »

"readily obtainable fair market value", if any, at any time of a particular participating interest in a non-resident entity held at that time by a taxpayer, means the fair market value at that time of the participating interest if

(a)  in respect of the particular participating interest

(i)  there is a regularly published price of the amount (or of the average of the amounts each of which is the amount) at which participating interests that are identical to the particular participating interest last traded on a prescribed stock exchange on each of the latest 10 consecutive trading days of the participating interests on that stock exchange in the 30-day period that begins before the day that includes that time,

(ii)  the particular participating interest would, at that time, be an arm’s length interest of the taxpayer if the definition "arm’s length interest" in subsection 94.1(1) were read without reference to paragraph (b) of that definition,

(iii)  the identical participating interests are listed on that stock exchange throughout the period, in the taxpayer’s taxation year that includes that time, during which the taxpayer held the particular participating interest, and

(iv)  there are at least 10 trading days of the identical participating interests on that stock exchange in the period that begins 30 days before that time; or

(b)  in respect of the particular participating interest

(i)  the participating interests in the non-resident entity that are identical to the particular participating interest have, throughout the period, in the taxpayer’s taxation year that includes that time, during which the taxpayer held the particular participating interest, conditions attached that require the non-resident entity to accept at the demand of the holders of the participating interests (or that require the holders of the participating interests to accept, at the demand of the non-resident entity), at a price determined and payable in accordance with the conditions, the surrender in whole or in part of the participating interests, and

(ii)  that price

(A)  is determined by reference to the fair market value, at the time the participating interest is surrendered, of the property of the non-resident entity, and

(B)  would have been acceptable to entities dealing at arm’s length with one another.

"reconciliation amount"
« montant de rapprochement »

"reconciliation amount", at a particular time in a taxation year of a taxpayer in respect of a participating interest of the taxpayer, means the amount (including a negative amount) determined at the particular time by the formula

A - B

where

A is the amount determined by the formula

C - D

where

C is the amount that would be the cost at the particular time of the participating interest to the taxpayer if this Act were read without reference to this section, and

D is

(a)  if paragraph (12)(a) deems the taxpayer to have acquired the participating interest at a time in the taxation year, the cost at the particular time to the taxpayer of the participating interest, and

(b)  in any other case, the taxpayer’s proceeds of disposition from the last disposition in the taxation year by the taxpayer of the participating interest; and

B is the amount determined by the formula

(E + F) - G

where

E is the total of all amounts each of which is an amount, in respect of the participating interest, that is deducted, or that would if this Act were read without reference to subsection (20) have been deducted, under subsection (4) in computing the taxpayer’s income for

(a)  if paragraph (12)(a) deems the taxpayer to have acquired the participating interest at a time in the taxation year, a taxation year (in this definition referred to as the "preceding taxation year") of the taxpayer that precedes the taxation year, and

(b)  in any other case, the taxation year or a preceding taxation year,

F is the total of all amounts each of which is an amount, in respect of the participating interest, deducted under paragraph 94.4(2)(a) in computing the taxpayer’s income for

(a)  if paragraph (12)(a) deems the taxpayer to have acquired the participating interest at a time in the taxation year, a preceding taxation year, and

(b)  in any other case, the taxation year or a preceding taxation year, and

G is the total of all amounts each of which is an amount, in respect of the participating interest, that is included, or that would if this Act were read without reference to subsection (20) have been included, under subsection (4) in computing the taxpayer’s income for

(a)  if paragraph (12)(a) deems the taxpayer to have acquired the participating interest at a time in the taxation year, a preceding taxation year, and

(b)  in any other case, the taxation year or a preceding taxation year.

"tracking entity"
« entité de référence »

"tracking entity", in respect of a particular participating interest of a taxpayer in a particular non-resident entity at a particular time, means the particular non-resident entity if

(a)  the tracked properties described in paragraph (9)(d) in respect of the participating interest are at that time owned by the particular non-resident entity, and

(i)  the total fair market value at that time of those tracked properties is less than 90% of the total fair market value at that time of all property owned at that time by the particular non-resident entity, and

(ii)  the total fair market value at that time of those tracked properties that are at that time investment property exceeds 50% of the total fair market value at that time of those tracked properties; or

(b)  any tracked property described in paragraph (9)(d) in respect of the participating interest is not at that time owned by the particular non-resident entity, the particular non-resident entity (or an entity with which the particular non-resident entity does not deal at arm’s length) owns property that is at that time investment property, and it is reasonable to conclude that that investment property (or property that may be substituted for that investment property) may be used, or give rise to property used, to satisfy, directly or indirectly, the right referred to in paragraph (9)(d) in respect of the particular participating interest.

"trading day"
« jour de bourse »

"trading day", of a participating interest on a prescribed stock exchange, means a day on which the participating interest trades on that stock exchange.

Rules of application

(2)  In this section,

(a)  subsection 94.1(2) applies;

(b)  in applying paragraph (a) of the definition "readily obtainable fair market value" in subsection (1) in respect of a particular participating interest, in a non-resident entity, held by a taxpayer in a taxation year, where participating interests, in the non-resident entity, that are identical to the particular participating interest are listed on more than one prescribed stock exchange, the references in that paragraph to a prescribed stock exchange shall be read as references to

(i)  if the taxpayer so elects, by notifying the Minister in writing in the taxpayer’s return of income for that taxation year or a preceding taxation year, the prescribed stock exchange identified by the taxpayer in that election, and

(ii)  if the taxpayer has not filed an election in accordance with subparagraph (i) or if participating interests that are identical to the particular participating interest are no longer listed on the stock exchange identified in the election referred to in that subparagraph, the prescribed stock exchange chosen by the Minister;

(c)  paragraph (3)(b) does not apply to a taxpayer for a particular taxation year in respect of a participating interest, in a non-resident entity, held in the particular taxation year by the taxpayer if

(i)  subsection (3) applied, because of an election under paragraph (3)(b), for a taxation year (referred to in this paragraph as the "preceding taxation year") that ended before the particular taxation year of the taxpayer in respect of the participating interest (or in respect of any other participating interests, in the non-resident entity, that are identical to the participating interest), and

(ii)  subsection (3) did not apply for a taxation year of the taxpayer that was after the preceding taxation year and before the particular taxation year in respect of the participating interest (or in respect of any of the other participating interests);

(d)  paragraph (3)(b) does not apply to a taxpayer for a particular taxation year in respect of a participating interest, in a non-resident entity, held in the particular taxation year by the taxpayer if the Minister sends a written demand to the taxpayer requesting additional information for the purpose of enabling the Minister to determine whether the participating interest has a readily obtainable fair market value and information satisfactory to the Minister to make the determination is not received by the Minister within 60 days (or within any longer period that is acceptable to the Minister) after the Minister sends the demand;

(e)  in applying subparagraph (4)(a)(i) to a taxpayer, that is a trust, for a particular taxation year of the taxpayer and in respect of a participating interest of the taxpayer in a non-resident entity, the reference in that subparagraph to "as income from property from a property that is the participating interest" is to be read as a reference to "as income from property that is a source outside Canada that is the participating interest", if the portion of the net accounting income of the non-resident entity, from sources outside Canada, for its last taxation year that ends in the particular taxation year exceeds 90% of the total net accounting income of the non-resident entity for that last taxation year; and

(f)  in applying subparagraph (4)(b)(i) to a taxpayer, that is a trust, for a particular taxation year of the taxpayer and in respect of a participating interest of the taxpayer in a non-resident entity, the reference in that subparagraph to "a capital gain for the year" is to be read as a reference to "a capital gain for the year from a source outside Canada", if the portion of the net accounting income of the non-resident entity, from sources outside Canada, for its last taxation year that ends in the particular taxation year exceeds 90% of the total net accounting income of the non-resident entity for that last taxation year.

Application of mark-to-market method

(3)  Subject to paragraphs (2)(c) and (d) and (5)(b), this subsection applies to a taxpayer for a particular taxation year of the taxpayer in respect of a participating interest held in the particular taxation year by the taxpayer

(a)  if paragraph (11)(a) applies to the taxpayer for the particular taxation year in respect of the participating interest; or

(b)  if

(i)  subsection (9) or 94.1(3) applies to the taxpayer for the particular taxation year in respect of the participating interest,

(ii)  the participating interest has, at all times in the particular taxation year at which the taxpayer held the participating interest, a readily obtainable fair market value,

(iii)  either

(A)  this subsection applied in respect of an identical participating interest that was held by the taxpayer at any time when the taxpayer held the participating interest, or

(B)  the taxpayer has elected that this subsection apply in respect of the participating interest by notifying the Minister in writing in the taxpayer’s return of income filed on or before the taxpayer’s filing due-date for the first taxation year of the taxpayer for which

(I)  subsection (9) or 94.1(3), as the case may be, applies to the taxpayer in respect of the participating interest, or

(II)  subsection 94.1(3) applies to the taxpayer in respect of the participating interest and that immediately follows a taxation year of the taxpayer for which subsection (9) applied to the taxpayer in respect of the participating interest, and

(iv)  subsection 94.3(3) has never applied to the taxpayer for a taxation year in respect of the participating interest or in respect of an identical participating interest that was held by the taxpayer at any time when the taxpayer held the participating interest.

Income inclusion — mark-to-market regime

(4)  If subsection (3) applies to a taxpayer for a taxation year of the taxpayer in respect of a participating interest in a non-resident entity, this subsection applies and in computing the taxpayer’s income for the taxation year in respect of the participating interest

(a)  where subsection (20) does not apply for the taxation year in respect of the participating interest,

(i)  there shall be added, as income from property from a property that is the participating interest, the positive amount, if any, determined by the mark-to-market formula for the taxation year in respect of the participating interest, and

(ii)  there may be deducted, as a loss from property,

(A)  if the participating interest was deemed by paragraph (11)(b) to be a participating interest in an entity for the year, nil, and

(B)  in any other case, the absolute value of the negative amount, if any, determined by the mark-to-market formula for the taxation year in respect of the participating interest; and

(b)  where subsection (20) applies for the taxation year in respect of the participating interest,

(i)  the taxpayer is deemed to have a capital gain for the year from the disposition of capital property, that is the participating interest, in the taxation year equal to the amount, if any, by which the total of

(A)  the positive amount, if any, determined by the mark-to-market formula for the taxation year in respect of the participating interest, and

(B)  the positive amount, if any, that is the amount determined for D in applying the definition "mark-to-market formula" in subsection (1) for the taxation year in respect of the participating interest (where the gross-up factor for the deferral amount in respect of the participating interest is 2)

exceeds

(C)  the absolute value of the negative amount, if any, that is the amount determined for D in applying the definition "mark-to-market formula" in subsection (1) for the taxation year in respect of the participating interest (where the gross-up factor for the deferral amount in respect of the participating interest is 2), and

(ii)  the taxpayer is deemed to have a capital loss for the taxation year from the disposition of capital property, that is the participating interest, in the taxation year equal to

(A)  if the participating interest was deemed by paragraph (11)(b) to be a participating interest in an entity for the year, nil, and

(B)  in any other case, the amount, if any, by which the total of

(I)  the absolute value of the negative amount, if any, determined by the mark-to-market formula for the taxation year in respect of the participating interest, and

(II)  the absolute value of the negative amount, if any, that is the amount determined for D in applying the definition "mark-to-market formula" in subsection (1) for the taxation year in respect of the participating interest (where the gross-up factor for the deferral amount in respect of the participating interest is 2)

exceeds

(III)  the positive amount, if any, that is the amount determined for D in applying the definition "mark-to-market formula" in subsection (1) for the taxation year in respect of the participating interest (where the gross-up factor for the deferral amount in respect of the participating interest is 2).

Non-resident periods excluded

(5)  If a taxpayer is non-resident at any time in a taxation year of the taxpayer

(a)  in applying subsection (4) and the definition "mark-to-market formula" in subsection (1) (other than the description of D in that definition) in respect of a participating interest of the taxpayer, the taxation year is deemed to be the period, if any, that begins at the first time in the taxation year at which the taxpayer is resident in Canada and ends at the last time in the taxation year at which the taxpayer is resident in Canada;

(b)  except for the purposes of subsection (4) and paragraph (c), subsection (3) does not apply to the taxpayer at that time; and

(c)  where the taxpayer is an individual (other than a trust) who was non-resident throughout a particular period that is within a taxation year (determined under paragraph (a)) of the taxpayer, at any time in the particular period the individual holds a participating interest in a non-resident entity, and subsection (3) applies to the individual throughout the particular period in respect of the participating interest,

(i)  for the purpose of section 114, the income or loss of the individual in respect of the participating interest for the particular period shall be determined without reference to this section, and

(ii)  in computing the amount determined under paragraph 114(a) in respect of the individual for the taxation year

(A)  there shall be deducted any amount that would be included under subparagraph (4)(a)(i) in computing the individual’s income in respect of the participating interest for the particular period if

(I)  the amount determined for D in applying the definition "mark-to-market formula" in subsection (1) for the taxation year in respect of the participating interest were nil, and

(II)  the particular period were a taxation year, and

(B)  there shall be added any amount that would be deductible under subparagraph (4)(a)(ii) in computing the individual’s income in respect of the participating interest for the particular period if

(I)  the amount determined for D in applying the definition "mark-to-market formula" in subsection (1) for the taxation year in respect of the participating interest were nil, and

(II)  the particular period were a taxation year.

Foreign partnership — member becoming resident

(6)  If, at a particular time in a fiscal period of a partnership, a person resident in Canada becomes a member of the partnership, or a person who is a member of the partnership becomes resident in Canada, and immediately before the particular time no member of the partnership is resident in Canada,

(a)  all amounts determined under this section shall be determined as if that fiscal period began at the first time in that fiscal period (determined without reference to this paragraph) at which a member of the partnership was resident in Canada;

(b)  for the purpose of the definition "deferral amount" in subsection (1), as it applies in respect of dispositions that occur after the particular time and before the first subsequent time to which this subsection applies in respect of the partnership, subsection (4) is deemed not to have applied to the partnership for any preceding fiscal period; and

(c)  where a negative deferral amount would, if this Act were read without reference to this paragraph, be determined in respect of a participating interest held by the partnership immediately before the particular time, the deferral amount in respect of the interest is deemed to be nil.

Foreign partnership — member ceasing to be resident

(7)  If, at a particular time in a fiscal period of a partnership, a person resident in Canada ceases to be a member of the partnership, or a person who is a member of the partnership ceases to be resident in Canada and immediately after the particular time no member of the partnership is resident in Canada, all amounts determined under this section shall be determined as if that fiscal period ended at the last time in that fiscal period (determined without reference to this subsection) at which a member of the partnership was resident in Canada.

Application of ss. (6) and (7)

(8)  In subsections (6) and (7) and this subsection,

(a)  if it can reasonably be considered that one of the main reasons that a member of a partnership is resident in Canada is to avoid the application of subsection (6) or (7), the member is deemed not to be resident in Canada; and

(b)  if a particular partnership is a member of another partnership at any time,

(i)  each person or partnership that is at that time a member of the particular partnership is deemed to be at that time a member of the other partnership,

(ii)  each person or partnership that becomes at that time a member of the particular partnership is deemed to become at that time a member of the other partnership, and

(iii)  each person or partnership that ceases at that time to be a member of the particular partnership is deemed to cease at that time to be a member of the other partnership.

Tracking interests

(9)  This subsection applies to a taxpayer (other than an exempt taxpayer) for a particular taxation year of the taxpayer in respect of a particular participating interest, in a non-resident entity, held in the particular taxation year by the taxpayer (and in respect of any other participating interests that are identical to the particular participating interest and that are held by the taxpayer in the particular taxation year) only if

(a)  subsection 94.1(3) does not apply to the taxpayer for the particular taxation year in respect of the particular participating interest;

(b)  at the end of a taxation year of the non-resident entity that ends in the particular taxation year, the particular participating interest

(i)  is held by the taxpayer, and

(ii)  either

(A)  is not an exempt interest in the non-resident entity, or

(B)  would not be such an exempt interest if the definition "exempt interest" in subsection 94.1(1) were read without reference to subparagraph (a)(i) or (ii) of that definition;

(c)  at the end of that taxation year of the non-resident entity, it is a tracking entity in respect of the particular participating interest;

(d)  at any time in the particular taxation year, the amount of any payment under a right (whether immediate or future, whether absolute or contingent or whether conditional on or subject to the exercise of any discretion by any entity or individual) to receive, in any manner whatever and from any entity, amounts in respect of the particular participating interest or any identical interests, or the value of such a right, is, directly or indirectly, determined primarily by one or more of the following criteria in respect of one or more properties (such property or properties together referred to, in this subsection and the definition "tracking entity" in subsection (1), as "tracked property" or "tracked properties"):

(i)  production from the property, use of the property, gains from the disposition of the property, profits from the disposition of the property, fair market value of the property,

(ii)  income from the property, profits from the property, revenue from the property, cash flow from the property, or

(iii)  any other criterion similar to a criterion referred to in subparagraph (i) or (ii); and

(e)  throughout each taxation year of the non-resident entity that ends in the particular taxation year, all or substantially all of the fair market value of the tracked property cannot be attributed, either directly or indirectly, to the fair market value of property

(i)  that is a share or shares of the capital stock of a corporation that is at that time a particular foreign affiliate of the taxpayer that if held at that time by the taxpayer would be

(A)  a qualifying interest (within the meaning assigned by paragraph 95(2)(m)) of the taxpayer in the particular foreign affiliate of the taxpayer, and

(B)  throughout the period, in the particular taxation year, that the taxpayer held the share or shares, a participating interest of the taxpayer in a qualifying entity, and

(ii)  that is not at that time tracked property in respect of a participating interest in a non-resident entity of an entity that is not related to the taxpayer.

Treatment of foreign insurance policies

(10)  This subsection applies to a taxpayer for a particular taxation year of the taxpayer in respect of an interest in an insurance policy, if

(a)  the taxpayer is not an exempt taxpayer for the particular taxation year;

(b)  the taxpayer holds, at any time in the particular taxation year, an interest in the insurance policy; and

(c)  the insurance policy is not an insurance policy issued by an insurer in the course of carrying on an insurance business in Canada the income from which is subject to tax under this Part.

Treatment of foreign insurance policies

(11)  If subsection (10) applies to a taxpayer for a particular taxation year of the taxpayer in respect of an interest in an insurance policy

(a)  subject to paragraph (c), this paragraph applies to the taxpayer for the particular taxation year in respect of the interest, and no amount shall be included or deducted, as the case may be, under section 12.2, paragraphs 56(1)(d) and (j) and 60(a) and (s) and sections 138.1 and 148 in respect of the interest for the purpose of computing the taxpayer’s income for the particular taxation year;

(b)  subject to paragraph (c), in applying subsections (1) to (4) and paragraph (d.1) of the definition "specified foreign property" in subsection 233.3(1) to the taxpayer in respect of the interest for the particular taxation year,

(i)  the interest is deemed at each time in the particular taxation year that it is held by the taxpayer to be a participating interest in a non-resident entity, and

(ii)  the amount determined for D in applying the definition "mark-to-market formula" in subsection (1) for the taxation year in respect of the participating interest is deemed to be nil;

(c)  paragraphs (a) and (b) do not apply to the taxpayer for the particular taxation year in respect of the interest if

(i)  the taxpayer is an individual and the interest in the policy was acquired by the individual more than 60 months before the individual became resident in Canada unless, at any time in the period that begins 60 months before the day on which the individual became resident in Canada and that ends at the end of the particular taxation year, the individual paid premiums in respect of the policy that are in excess of the level that can reasonably be considered to have been contemplated at the time the first interest in the policy was acquired,

(ii)  under the terms and conditions of the insurance policy, the taxpayer is entitled to receive only

(A)  benefits payable as a consequence of the occurrence of risks insured under the policy,

(B)  an experience-rated refund of premiums for a year, or

(C)  a return of premiums previously paid upon the surrender, cancellation or termination of the insurance policy, or

(iii)  the taxpayer can establish to the satisfaction of the Minister that

(A)  the interest in the policy was, on the anniversary day of the policy that occurs in the taxation year,

(I)  an exempt policy, or

(II)  a prescribed annuity contract, or

(B)  the taxpayer has included in computing the taxpayer’s income for the particular year the amount, if any, required under section 12.2 to be included in computing the taxpayer’s income for that year in respect of the interest;

(d)  for the purpose of subsections (1) and (4), an interest in an insurance policy held by a taxpayer at the end of a particular taxation year is deemed to have been acquired by the taxpayer at the beginning of the following taxation year at a cost equal to the fair market value at the end of the particular taxation year of the interest if

(i)  paragraphs (a) and (b) do not apply to the taxpayer in respect of the interest for the particular year, and

(ii)  paragraphs (a) and (b) apply to the taxpayer in respect of the interest for the taxpayer’s following taxation year;

(e)  for the purpose of subsections (1) and (4), an interest in an insurance policy held by a taxpayer at the beginning of a particular taxation year is deemed to have been disposed of by the taxpayer at the end of the taxpayer’s preceding taxation year for proceeds of disposition equal to its fair market value at the end of that preceding taxation year if

(i)  paragraphs (a) and (b) do not apply to the taxpayer in respect of the interest for the particular taxation year, and

(ii)  paragraphs (a) and (b) applied to the taxpayer in respect of the interest for the taxpayer’s preceding taxation year;

(f)  for the purposes of this subsection and subsections (1) and (4), the fair market value of an interest in an insurance policy, the proceeds of disposition of an interest in an insurance policy and amounts paid to a beneficiary in respect of an interest in an insurance policy are each determined without reference to benefits paid, payable or anticipated to be payable, under the insurance policy as a consequence only of the occurrence of the risks insured under the insurance policy;

(g)  for the purposes of this subsection and subsections (1) and (4),

(i)  an interest in an insurance policy is deemed to have been acquired by the taxpayer in a particular taxation year (notwithstanding that the interest was held by the taxpayer at the end of the preceding taxation year), where the taxpayer made a payment described in subparagraph (ii) in respect of a premium or a loan under the policy in the particular taxation year, and

(ii)  the cost to the taxpayer of an interest in an insurance policy acquired in a particular taxation year is the total of all amounts each of which is

(A)  the amount of a premium paid by the taxpayer in the particular taxation year under the insurance policy to the extent that it cannot be refunded (otherwise than on termination or cancellation of the policy) and is not a payment in respect of a benefit described in subparagraphs (c)(i) to (vii) of the definition "premium" in subsection 148(9),

(B)  the amount of a payment made by the taxpayer in the particular taxation year in respect of the principal amount of a loan made under the insurance policy in any taxation year to the extent that the loan was included in the amount determined for C in applying the definition "mark-to-market formula" in subsection (1) for the taxation year, in which the loan was made, in respect of the participating interest, and

(C)  an amount (other than amount described in clause (A) or (B)) paid by the taxpayer, to an entity or individual other than the insurer that issued the policy, to acquire the interest from the entity or individual;

(h)  if, under paragraph (d), a taxpayer is deemed to have acquired an interest in an insurance policy at the beginning of a taxation year (referred to in this paragraph as the "acquisition year"), the taxpayer may add to the cost of that interest, the amount, if any, by which

(i)  the total amount of premiums paid by the taxpayer before the beginning of the acquisition year in respect of that interest at a time at which the taxpayer was resident in Canada and not an exempt taxpayer for the year in respect of the interest (to the extent that the premiums paid cannot be refunded otherwise than on termination or cancellation of the policy and are not premiums paid in respect of a benefit described in subparagraphs (c)(i) to (vii) of the definition "premium" in subsection 148(9))

exceeds

(ii)  the total of the fair market value, at the beginning of the acquisition year, of that interest and the total of the amounts received by the taxpayer before the beginning of the acquisition year under the policy at a time at which the taxpayer was resident in Canada and not an exempt taxpayer for the year in respect of the interest;

(i)  for the purpose of subsections (1) and (4), if the amount determined under subparagraph (h)(ii) exceeds the amount determined under subparagraph (h)(i) in respect of an interest in an insurance policy of a taxpayer described in paragraph (h), the amount of the excess shall be added in computing the taxpayer’s proceeds of disposition of that interest for the taxation year in which the taxpayer disposes of the interest otherwise than because of paragraph (e); and

(j)  where an interest in an insurance policy is held by a taxpayer at the beginning of a particular taxation year, paragraphs (a) and (b) do not apply to the taxpayer in respect of the interest for the particular taxation year, and paragraphs (a) and (b) applied to the taxpayer in respect of the interest for the taxpayer’s preceding taxation year, the interest is deemed to have been acquired by the taxpayer at the beginning of the particular taxation year at a cost equal to the amount, if any, by which

(i)  the total of

(A)  the fair market value, at the end of the taxpayer’s preceding taxation year, of the interest, and

(B)  the amount that would be determined under subparagraph (4)(a)(ii) in respect of the interest in respect of the taxpayer for the taxpayer’s preceding taxation year if that subparagraph were read without reference to its clause (A),

exceeds

(ii)  the amount determined under paragraph (i) in respect of the interest in respect of the taxpayer.

Change of status

(12)  If a participating interest in a non-resident entity is held by a taxpayer at a time that is the beginning of a taxation year, subsection (4) applied for the purpose of computing the taxpayer’s income for the preceding taxation year in respect of the participating interest, and that subsection does not apply for the purpose of computing the taxpayer’s income for the taxation year in respect of the participating interest (otherwise than because the taxpayer became an exempt taxpayer or ceased to reside in Canada),

(a)  subject to paragraph (c), the taxpayer is deemed to have acquired the participating interest at that time at a cost equal to its fair market value at that time;

(b)  where the participating interest is capital property of the taxpayer, in computing the adjusted cost base after that time to the taxpayer of the interest

(i)  there shall be deducted

(A)  except where the taxpayer has made an election in respect of the participating interest under subparagraph (a)(iii) of the description of D in the definition "mark-to-market formula" in subsection (1) for the taxation year in respect of the participating interest, the product of the positive deferral amount, if any, in respect of the participating interest and the gross-up factor for the deferral amount, and

(B)  the absolute value of the negative reconciliation amount, if any, at that time in respect of the participating interest, and

(ii)  there shall be added

(A)  the product of the absolute value of the negative deferral amount, if any, in respect of the participating interest and the gross-up factor for the deferral amount, and

(B)  the positive reconciliation amount, if any, at that time in respect of the participating interest; and

(c)  where paragraph (b) does not apply,

(i)  there shall be deducted in computing the cost to the taxpayer of the participating interest

(A)  except where the taxpayer has made an election in respect of the participating interest under subparagraph (a)(iii) of the description of D in the definition "mark-to-market formula" in subsection (1) for the taxation year in respect of the participating interest, the lesser of

(I)  the product of the positive deferral amount, if any, in respect of the participating interest and the gross-up factor for the deferral amount, and

(II)  the cost to the taxpayer of the participating interest, determined without reference to this subparagraph, and

(B)  the absolute value of the negative reconciliation amount, if any, at that time in respect of the participating interest,

(ii)  there shall be included in computing the taxpayer’s income for the taxation year in respect of the participating interest the amount, if any, by which

(A)  the amount determined under subclause (i)(A)(I) in respect of the participating interest

exceeds

(B)  the amount determined under subclause (i)(A)(II) in respect of the participating interest, and

(iii)  there shall be added in computing the cost to the taxpayer of the participating interest

(A)  the product of the absolute value of the negative deferral amount, if any, in respect of the participating interest and the gross-up factor for the deferral amount, and

(B)  the positive reconciliation amount, if any, at that time in respect of the participating interest.

Cost of participating interest

(13)  If a taxpayer’s participating interest in a non-resident entity is disposed of by the taxpayer at a particular time in a taxation year and subsection (4) applies for the purpose of computing the taxpayer’s income for the taxation year in respect of the participating interest, in determining the taxpayer’s cost of the participating interest immediately before the particular time

(a)  if the participating interest was held by the taxpayer at the beginning of the taxation year, its cost to the taxpayer immediately before the particular time is deemed to be equal to the fair market value at the beginning of the taxation year of the participating interest; and

(b)  in any other case, its cost to the taxpayer immediately before the particular time is deemed to be equal to the amount that would be its cost to the taxpayer at the particular time if this Act were read without reference to this section.

Deferral amount where same interest reacquired

(14)  Subject to subsections (15) to (18), if a taxpayer disposes of a participating interest in an entity at any time in a taxation year of the taxpayer and subsection (4) applies for the purpose of computing the taxpayer’s income for the year in respect of the participating interest, in applying subsection (4) to a disposition after that time by the taxpayer of the participating interest, the deferral amount of the taxpayer in respect of the participating interest is nil.

Deferral amount — fresh start re change of status of entity

(15)  If a participating interest is deemed by paragraph (12)(a) to have been acquired at a particular time in a taxation year by a taxpayer, in applying subsection (4) to a disposition after the taxation year by the taxpayer of the participating interest and to an election made after the taxation year by the taxpayer under subparagraph (a)(iii) of the description of D in the definition "mark-to-market formula" in subsection (1) for the taxation year in respect of the participating interest, the deferral amount of the taxpayer in respect of the participating interest shall be determined

(a)  for the purpose of subparagraph (a)(iii) of the description of B in the definition "deferral amount" in subsection (1), as if subsection (4) had not applied to the taxpayer in respect of the participating interest for taxation years that began before the particular time; and

(b)  without reference to the application of subsection (14) with regard to dispositions that occurred before the particular time.

Deferral amount — fresh start after emigration of taxpayer

(16)  If a taxpayer ceases at a particular time to be resident in Canada, in applying subsection (4) to a disposition after the particular time by the taxpayer of a participating interest and to an election made after the particular time by the taxpayer under subparagraph (a)(iii) of the description of D in the definition "mark-to-market formula" in subsection (1) for a taxation year in respect of the participating interest, the deferral amount of the taxpayer in respect of the participating interest shall be determined

(a)  for the purpose of subparagraph (a)(iii) of the description of B in the definition "deferral amount" in subsection (1), as if subsection (4) had not applied to the taxpayer in respect of the participating interest for taxation years that began before the particular time; and

(b)  without reference to the application of subsection (14) with regard to dispositions that occurred before the particular time.

Deferral amount — fresh start on becoming an exempt taxpayer

(17)  If a taxpayer is an exempt taxpayer for a particular taxation year of the taxpayer because of the application of paragraph (a) or (b) of the definition "exempt taxpayer" in subsection 94.1(1), and the taxpayer was not an exempt taxpayer for the taxation year of the taxpayer that preceded the particular taxation year, in applying subsection (4) to a disposition after the particular taxation year by the taxpayer of a participating interest and to an election made after the particular taxation year by the taxpayer under subparagraph (a)(iii) of the description of D in the definition "mark-to-market formula" in subsection (1) for a taxation year in respect of the participating interest, the deferral amount of the taxpayer in respect of the participating interest shall be determined

(a)  for the purpose of subparagraph (a)(iii) of the description of B in the definition "deferral amount" in subsection (1), as if subsection (4) had not applied to the taxpayer in respect of the participating interest for taxation years that ended before the particular taxation year; and

(b)  without reference to the application of subsection (14) with regard to dispositions that occurred before the particular taxation year.

Superficial dispositions

(18)  If a taxpayer disposes of a participating interest, the deferral amount in respect of the participating interest would otherwise be a negative amount, and the disposition would, if the participating interest were a capital property and a loss arose on the disposition, give rise to a superficial loss (within the meaning that would be assigned by section 54 if the definition "superficial loss" in that section were read without the reference to subsection 40(3.4) in paragraph (h) of that definition),

(a)  except for the purpose of applying paragraph (b) in respect of the disposition, the deferral amount of the taxpayer in respect of the participating interest is deemed to be nil; and

(b)  the deferral amount of the taxpayer in respect of the property that would be the substituted property referred to in that definition if the assumptions described in this subsection applied is deemed to be equal to the deferral amount of the taxpayer in respect of the participating interest.

Determination of capital dividend account

(19)  If an amount has been included or deducted under paragraph (4)(a) in computing the income of a corporation resident in Canada for a taxation year in respect of a participating interest, in computing the capital dividend account of the corporation

(a)  the corporation is deemed to have

(i)  a capital gain from a disposition at the end of the taxation year of property equal to twice the amount of the taxable capital gain determined under subparagraph (ii), and

(ii)  a taxable capital gain from the disposition at the end of the taxation year of property equal to the lesser of

(A)  the positive amount, if any, that is the amount determined for D in applying the definition "mark-to-market formula" in subsection (1) for the taxation year in respect of the participating interest (where the gross-up factor for the deferral amount in respect of the participating interest is 2), and

(B)  the amount included in computing the income of the corporation for the taxation year under subsection (4); and

(b)  the corporation is deemed to have

(i)  a capital loss from a disposition at the end of the taxation year of property equal to twice the amount of the allowable capital loss determined under subparagraph (ii), and

(ii)  an allowable capital loss from the disposition at the end of the taxation year of property equal to the lesser of

(A)  the absolute value of the negative amount, if any, that is the amount determined for D in applying the definition "mark-to-market formula" in subsection (1) for the taxation year in respect of the participating interest (where the gross-up factor for the deferral amount in respect of the participating interest is 2), and

(B)  the amount deducted in computing the income of the corporation for the taxation year under subsection (4).

Application of para. (4)(b)

(20)  This subsection applies for a taxation year of a taxpayer in respect of a participating interest, in a particular non-resident entity, held in the taxation year by the taxpayer, if

(a)  the participating interest would, if paragraph 39(1)(a) and the definition "inventory" in subsection 248(1) were read without reference to this section, be a capital property of the taxpayer at the last time in the taxation year at which the taxpayer held the participating interest; and

(b)  all or substantially all of the amount determined under the mark-to-market formula for the taxation year in respect of the participating interest can be attributed to

(i)  capital gains or capital losses from the disposition of capital property (other than a participating interest in a foreign investment entity) by the particular non-resident entity or by any foreign investment entity in which the particular non-resident entity has a direct or indirect interest, and

(ii)  increases or decreases in the fair market value of capital property (other than a participating interest in a foreign investment entity) of the particular non-resident entity or of any foreign investment entity in which the particular non-resident entity has a direct or indirect interest.

Disposition of interest — reconciliation

(21)  If a taxpayer’s participating interest in a non-resident entity is disposed of by the taxpayer at a particular time in a particular taxation year, and subsection (4) applies for the purpose of computing the taxpayer’s income for the particular taxation year in respect of the participating interest, in computing that income

(a)  where subsection (20) does not apply for the particular taxation year, and has never applied for a preceding taxation year, in respect of the participating interest,

(i)  there may be deducted, as a loss from property from a property that is the participating interest, the positive reconciliation amount, if any, at that time in respect of the participating interest, and

(ii)  there shall be included, as income from property from a property that is the participating interest, the absolute value of the negative reconciliation amount, if any, at that time in respect of the participating interest; and

(b)  in any other case,

(i)  the taxpayer is deemed to have a capital loss for the particular taxation year from the disposition of capital property that is the participating interest in the particular taxation year equal to the positive reconciliation amount, if any, at that time in respect of the participating interest, and

(ii)  the taxpayer is deemed to have a capital gain for the particular taxation year from the disposition of capital property that is the participating interest in the particular taxation year equal to the absolute value of the negative reconciliation amount, if any, at that time in respect of the participating interest.

Foreign Investment Entities — Accrual

Definitions

94.3  (1)  The definitions in subsections 94.1(1) and 94.2(1), and the following definitions, apply in this section.

"fresh-start year"
« année de redémarrage »

"fresh-start year", of a non-resident entity in respect of a taxpayer, means a taxation year of the non-resident entity

(a)  that ends in a taxation year of the taxpayer that begins after 2002 if, at the end of the taxation year of the non-resident entity, the non-resident entity is a foreign investment entity and the taxpayer holds a participating interest, other than an exempt interest, in the non-resident entity; and

(b)  that begins immediately after a preceding taxation year of the non-resident entity at the end of which the non-resident entity was not a foreign investment entity or the taxpayer did not hold a participating interest in the non-resident entity.

"income allocation"
« revenu attribué »

"income allocation", of a particular taxpayer in respect of a particular participating interest, in a non-resident entity, held by the particular taxpayer at the end of a particular taxation year of the non-resident entity that ends in a taxation year of the taxpayer, means the amount determined by the formula

A x B/C

where

A is the amount that would be the income of the non-resident entity for the particular taxation year if

(a)  except for the purposes of subparagraph (2)(b)(ii), section 91, subsection 107.4(1) and paragraph (f) of the definition "disposition" in subsection 248(1), the non-resident entity had been a taxpayer resident in Canada throughout its existence,

(b)  each property held by the non-resident entity at the particular time that is the beginning of a fresh-start year of the non-resident entity in respect of the particular taxpayer had been

(i)  disposed of by the non-resident entity immediately before the particular time for proceeds equal to its fair market value at the particular time, and

(ii)  reacquired by the non-resident entity at the particular time at a cost equal to that fair market value,

(c)  for a fresh-start year of the non-resident entity in respect of the particular taxpayer and for each following taxation year of the non-resident entity, each deduction in computing the non-resident entity’s income that is contingent on a claim by the non-resident entity had been claimed by the non-resident entity to the extent, and only to the extent, designated by the particular taxpayer in prescribed form filed with the Minister with the particular taxpayer’s return of income for the particular taxpayer’s taxation year in which that fresh-start year or the following year, as the case may be, ends,

(d)  the non-resident entity had deducted the greatest amounts that it could have claimed or deducted as a reserve under sections 20, 138 and 140 for its taxation year that precedes a fresh-start year of the non-resident entity in respect of the particular taxpayer,

(e)  in applying sections 37, 65 to 66.4 and 66.7, the non-resident entity had not existed before a fresh-start year of the non-resident entity in respect of the particular taxpayer,

(f)  this Act were read without reference to subsections 20(11) and (12) and 104(4) to (6),

(g)  where the non-resident entity holds at any time in the particular taxation year a participating interest in another non-resident entity, the description of D in the definition "mark-to-market formula" in subsection 94.2(1) did not apply in respect of that interest,

(h)  paragraph (a) of the definition "exempt interest" in subsection 94.1(1) were read without reference to its subparagraph (i),

(i)  the amount included in computing the non-resident entity’s income for the particular taxation year in respect of capital gains were the amount, if any, by which the amount determined under subparagraph 3(b)(i) exceeds the amount determined under subparagraph 3(b)(ii) in respect of the non-resident entity for the particular taxation year,

(j)  the amount deducted in computing the non-resident entity’s income for the particular taxation year in respect of capital losses (other than business investment losses) were the amount, if any, by which the amount determined under subparagraph 3(b)(ii) exceeds the amount determined under subparagraph 3(b)(i) in respect of the non-resident entity for the particular taxation year, and

(k)  the amount deducted in computing the non-resident entity’s income for the particular taxation year in respect of business investment losses were the amount of its allowable business investment losses for the particular taxation year;

B is the amount that is the fair market value, at the end of the particular taxation year, of the particular participating interest; and

C is the fair market value, at the end of the particular taxation year, of all of the participating interests in the non-resident entity (other than an interest that would not be a participating interest, in the non-resident entity, if the definition "participating interest" in subsection 94.1(1) were read without reference to paragraph (d) of that definition).

"loss allocation"
« pertes attribuées »

"loss allocation", of a particular taxpayer in respect of a participating interest, in a non-resident entity, held by the taxpayer at the end of a particular taxation year of the non-resident entity that ends in a taxation year of the taxpayer, means the amount determined by the formula

(A - B) x C/D

where

A is the total of all amounts each of which is

(a)  an amount that would, if paragraphs (a) to (h) of the description of A in the definition "income allocation" applied in respect of the particular taxpayer and the participating interest, be a loss of the non-resident entity for the particular taxation year from a business or property,

(b)  the amount, if any, by which the amount determined under subparagraph 3(b)(ii) exceeds the amount determined under subparagraph 3(b)(i) in respect of the non-resident entity for the particular taxation year, or

(c)  an allowable business investment loss of the non-resident entity for the particular taxation year;

B is the amount that would, if paragraphs (a) to (h) of the description of A in the definition "income allocation" applied in respect of the particular taxpayer and the participating interest, be determined under paragraph 3(c) in respect of the entity for the particular taxation year;

C is the amount that is the fair market value, at the end of the particular taxation year, of the participating interest; and

D is the fair market value, at the end of the particular taxation year, of all of the participating interests in the non-resident entity (other than an interest that would not be a participating interest, in the non-resident entity, if the definition "participating interest" in subsection 94.1(1) were read without reference to paragraph (d) of that definition).

"specified tax allocation"
« impôt déterminé attribué »

"specified tax allocation", of a taxpayer in respect of a participating interest, in a non-resident entity, held by the taxpayer at the end of a particular taxation year of the non-resident entity that ends in a taxation year of the taxpayer, means the total of all amounts each of which is the amount determined, in respect of the particular taxation year, by the formula

A x (B/C) x D

where

A is

(a)  if that taxation year of the taxpayer begins after 2002, the income or profits tax paid by the non-resident entity in respect of the particular taxation year, to the extent that that tax can reasonably be considered to be in respect of the income or profits of the non-resident entity included in computing the amount determined in respect of the non-resident entity and the participating interest under the description of A in the definition "income allocation" for the particular taxation year or any of the five taxation years of the non-resident entity that precede the particular taxation year and that end after 2002, and

(b)  in any other case, nil;

B is the amount that is the fair market value, at the end of the particular taxation year, of the participating interest;

C is the fair market value, at the end of the particular taxation year, of all of the participating interests in the non-resident entity (other than an interest that would not be a participating interest, in the non-resident entity, if the definition "participating interest" in subsection 94.1(1) were read without reference to paragraph (d) of that definition); and

D is the taxpayer’s relevant tax factor (as defined by subsection 95(1)) for that taxation year of the taxpayer.

Rules of application

(2)  In this section,

(a)  subsection 94.1(2) applies; and

(b)  subsection (3) does not apply to a taxpayer for a particular taxation year of the taxpayer in respect of a particular participating interest, in a non-resident entity, held in the particular taxation year by the taxpayer (and in respect of any other participating interests, in the non-resident entity, that are identical to the particular participating interest and that are held in the particular taxation year by the taxpayer) if

(i)  subsection 94.2(3) applies to the taxpayer for the particular taxation year in respect of the particular participating interest,

(ii)  the taxpayer is a foreign investment entity at the end of the particular taxation year,

(iii)  the Minister sends a written demand to the taxpayer requesting additional information for the purpose of enabling the Minister to determine whether an amount with respect to the particular participating interest would be required under subsection (4) to be added (or permitted under subsection (4) to be deducted) in computing the income of the taxpayer for the particular taxation year, and information satisfactory to the Minister to make the determination is not received by the Minister within 60 days (or within any longer period that is acceptable to the Minister) after the Minister sends the demand,

(iv)  the particular participating interest is an interest that would not, at each time in the particular taxation year at which the taxpayer held the particular participating interest (or any of the other participating interests) and at which a taxation year of the non-resident entity ends, be a participating interest, in the non-resident entity, if the definition "participating interest" in subsection 94.1(1) were read without reference to paragraph (d) of that definition,

(v)  subsection (3)

(A)  applied for a taxation year (referred to in this subparagraph as the "preceding taxation year") that ended before the particular taxation year of the taxpayer in respect of the particular participating interest, and

(B)  did not apply for a taxation year of the taxpayer that was after the preceding taxation year and before the particular taxation year in respect of the particular participating interest,

(vi)  the particular participating interest is a specified interest in a trust that is an exempt foreign trust because of paragraph (f) of the definition "exempt foreign trust" in subsection 94(1) and the trust holds, at any time in the particular taxation year, property in respect of which it has waived a right to receive an amount,

(vii)  subsection 94.2(9) applies to the taxpayer for the particular taxation year in respect of the particular participating interest,

(viii)  any of the participating interests in the non-resident entity (other than an interest that would not be a participating interest, in the non-resident entity, if the definition "participating interest" in subsection 94.1(1) were read without reference to paragraph (d) of that definition) are not identical to the particular participating interest, or

(ix)  where the non-resident entity is a trust, any amount of income or capital of the trust that any entity or individual may receive directly from the trust at any time as a beneficiary under the trust depends on the exercise by any entity or individual of, or the failure by any entity or individual to exercise, a discretionary power.

Where accrual method applies

(3)  Subject to paragraph (2)(b), this subsection applies to a taxpayer for a particular taxation year of the taxpayer in respect of a particular participating interest, in a non-resident entity, held in the particular taxation year by the taxpayer if

(a)  subsection 94.1(3) applies to the taxpayer for the particular taxation year in respect of the particular participating interest;

(b)  either

(i)  this subsection applied in respect of an identical participating interest that was held by the taxpayer at any time when the taxpayer held the particular participating interest, or

(ii)  the taxpayer has elected that this subsection apply in respect of the particular participating interest, by notifying the Minister in writing in the taxpayer’s return of income filed on or before the taxpayer’s filing-due date for the first taxation year of the taxpayer for which

(A)  subsection 94.1(3) applies to the taxpayer in respect of the particular participating interest, or

(B)  subsection 94.2(9) does not apply to the taxpayer in respect of the particular participating interest and that immediately follows a taxation year for which subsection 94.2(9) applied to the taxpayer in respect of the particular participating interest;

(c)  neither subsection 94.1(4) nor 94.2(3) applied to the taxpayer for a taxation year (referred to in this paragraph as the "preceding taxation year") that ended before the particular taxation year in respect of the particular participating interest (or in respect of an identical participating interest that was held by the taxpayer at any time when the taxpayer held the particular participating interest), unless subsection 94.2(9) applied for that preceding taxation year to the taxpayer in respect of the particular participating interest (or the identical participating interest);

(d)  the particular participating interest is, at each time in the particular taxation year at which the taxpayer held the particular participating interest and at which a taxation year of the non-resident entity ends, capital property of the taxpayer; and

(e)  the taxpayer files, with the taxpayer’s return of income filed on or before the taxpayer’s filing-due date for the particular taxation year, prescribed information in prescribed form.

Income inclusion or deduction — accrual method

(4)  If subsection (3) applies to a taxpayer resident in Canada for a particular taxation year of the taxpayer in respect of a participating interest in a non-resident entity, in computing the taxpayer’s income for the particular taxation year

(a)  there shall be added, as income from property from a property that is the participating interest, the positive amount, if any, determined by the formula

A - B - C - D

where

A is the total of all amounts each of which is the taxpayer’s income allocation in respect of the participating interest for each taxation year of the non-resident entity that ends in the particular taxation year,

B is the total of all amounts each of which is the taxpayer’s loss allocation in respect of the participating interest for each taxation year of the non-resident entity that ends in the particular taxation year,

C is the total of all amounts each of which is the specified tax allocation of the taxpayer in respect of the participating interest for each taxation year of the non-resident entity that ends in the particular taxation year, and

D is the amount, if any, by which

(i)  the amount determined under subparagraph (b)(i) in respect of the taxpayer and the participating interest for the taxation year (referred to in this paragraph as the "preceding taxation year") of the taxpayer that immediately preceded the particular taxation year

exceeds

(ii)  the amount determined under subparagraph (b)(ii) in respect of the taxpayer and the participating interest for the preceding taxation year; and

(b)  there may be deducted, as a loss from a property that is the participating interest, the lesser of

(i)  the absolute value of the negative amount, if any, determined by the formula in paragraph (a) in respect of the taxpayer and the participating interest for the particular taxation year, and

(ii)  the amount, if any, by which

(A)  the total of all amounts added under paragraph (a) in computing the taxpayer’s income, from a property that is the participating interest, for a taxation year of the taxpayer that ended before the particular taxation year

exceeds

(B)  the total of all amounts deductible under this paragraph in computing the taxpayer’s income, from a property that is the participating interest, for a taxation year of the taxpayer that ended before the particular taxation year.

Adjusted cost base

(5)  In computing at any time the adjusted cost base to a taxpayer of a participating interest in a non-resident entity

(a)  there shall be added the total of all amounts each of which is

(i)  the amount added (or that would have been added if this Act were read without reference to subsection 56(4.1) and sections 74.1 to 75), as income from a property that is the participating interest, under paragraph (4)(a) in computing the taxpayer’s income for a taxation year of the taxpayer that ended before, or includes, that time , and

(ii)  the product obtained when the amount determined under paragraph (i) of the description of A in the definition "income allocation" in subsection (1) in respect of the taxpayer and the participating interest for a particular taxation year of the non-resident entity that ended in a taxation year of the taxpayer that ended before, or includes, that time and at the end of which particular taxation year the taxpayer held the participating interest is multiplied by the amount that is determined by the fraction B/C described in the formula in that definition and that was used in computing the taxpayer’s income allocation in respect of the participating interest for the particular taxation year; and

(b)  there shall be deducted the total of all amounts each of which is

(i)  the amount deducted (or that would have been deducted if this Act were read without reference to subsection 56(4.1) and sections 74.1 to 75), as a loss from a property that is the participating interest, under paragraph (4)(b) in computing the taxpayer’s income for a taxation year of the taxpayer that ended before, or includes, that time ,

(ii)  the product obtained when the amount determined under paragraph (j) of the description of A in the definition "income allocation" in subsection (1) in respect of the taxpayer and the participating interest for a particular taxation year of the non-resident entity that ended in a taxation year of the taxpayer that ended before, or includes, that time and at the end of which particular taxation year the taxpayer held the participating interest is multiplied by the amount that is determined by the fraction C/D described in the formula in the definition "loss allocation" in subsection (1) that was used in computing the taxpayer’s loss allocation in respect of the participating interest for the particular taxation year, and

(iii)  the product obtained when the amount determined under paragraph (k) of the description of A in the definition "income allocation" in subsection (1) in respect of the taxpayer and the participating interest for a particular taxation year of the non-resident entity that ended in a taxation year of the taxpayer that ended before, or includes, that time and at the end of which particular taxation year the taxpayer held the participating interest is multiplied by the amount determined by the fraction C/D described in the formula in the definition "loss allocation" in subsection (1) was used in computing the taxpayer’s loss allocation in respect of the participating interest for the particular taxation year.

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