Archived - Legislative Proposals and Explanatory Notes Relating to Income Tax - Dividend Taxation: 1

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Legislative Proposals 

   1.   (1)  Subsection 15(1.1) of the Act is replaced by the following:

Conferring of benefit

(1.1)  Notwithstanding subsection (1), where in a taxation year a corporation has paid a stock dividend to a person and it may reasonably be considered that one of the purposes of that payment was to significantly alter the value of the interest of any specified shareholder of the corporation, the fair market value of the stock dividend shall, except to the extent that it is otherwise included in computing that person’s income under any of paragraphs 82(1)(a), (a.1) and (c) to (e), be included in computing the income of that person for the year.

(2)  Subsection (1) applies to dividends paid after 2005.

   2.   (1)  Subsection 82(1) of the Act is replaced by the following:

Taxable dividends received

   82.  (1)  In computing the income of a taxpayer for a taxation year, there shall be included the total of the following amounts:

(a)  the amount, if any, by which

(i)  the total of all amounts, other than eligible dividends and amounts described in paragraph (c), (d) or (e), received by the taxpayer in the taxation year from corporations resident in Canada as, on account of, in lieu of payment of or in satisfaction of, taxable dividends,

exceeds

(ii)  if the taxpayer is an individual, the total of all amounts paid by the taxpayer in the taxation year that are deemed by subsection 260(5) to have been received by another person as taxable dividends (other than eligible dividends);

(a.1)  the amount, if any, by which

(i)  the total of all amounts, other than amounts included in computing the income of the taxpayer because of paragraph (c), (d) or (e), received by the taxpayer in the taxation year from corporations resident in Canada as, on account of, in lieu of payment of or in satisfaction of, eligible dividends,

exceeds

(ii)  if the taxpayer is an individual, the total of all amounts paid by the taxpayer in the taxation year that are deemed by subsection 260(5) to have been received by another person as eligible dividends;

(b)  if the taxpayer is an individual, other than a trust that is a registered charity, the total of

(i)  25% of the amount determined under paragraph (a) in respect of the taxpayer for the taxation year, and

(ii)  45% of the amount determined under paragraph (a.1) in respect of the taxpayer for the taxation year;

(c)  all taxable dividends received by the taxpayer in the taxation year, from corporations resident in Canada, under dividend rental arrangements of the taxpayer;

(d)  all taxable dividends (other than taxable dividends described in paragraph (c)) received by the taxpayer in the taxation year from corporations resident in Canada that are not taxable Canadian corporations; and

(e)  if the taxpayer is a trust, all amounts each of which is all or part of a taxable dividend (other than a taxable dividend described in paragraph (c) or (d)) that was received by the trust in the taxation year on a share of the capital stock of a taxable Canadian corporation and that can reasonably be considered to have been included in computing the income of a beneficiary under the trust who was non-resident at the end of the taxation year.

(2)  Subsection (1) applies to dividends paid after 2005.

   3.  (1)  Paragraph 87(2)(z.2) of the Act is replaced by the following:

Application of Parts III and III.1

(z.2)  for the purposes of Parts III and III.1, the new corporation is deemed to be the same corporation as, and a continuation of, each predecessor corporation;

(2)  Subsection 87(2) of the Act is amended by striking out the word "and" at the end of paragraph (tt) and by adding the following after paragraph (uu):

(vv)  if the new corporation is a Canadian-controlled private corporation or a deposit insurance corporation in its first taxation year, in computing its general rate income pool at the end of that first taxation year there shall be added the total of all amounts determined under subsection 89(5) in respect of the corporation for that first taxation year; and

(ww)  if the new corporation is neither a Canadian-controlled private corporation nor a deposit insurance corporation in its first taxation year, there shall be added in computing its low rate income pool at any time in that first taxation year the total of all amounts determined under subsection 89(9) in respect of the corporation for that first taxation year.

(3)  Subsections (1) and (2) apply to amalgamations that occur, and to windings-up that begin, after 2005.

   4.  (1)  The portion of paragraph 88(1)(e.2) of the Act before subparagraph (i) is replaced by the following:

(e.2)  paragraphs 87(2)(c), (d.1), (e.1), (e.3), (g) to (l), (l.3) to (u), (x), (z.1), (z.2), (aa), (cc), (ll), (nn), (pp), (rr), and (tt) to (ww), subsection 87(6) and, subject to section 78, subsection 87(7) apply to the winding-up as if the references in those provisions to

(2)  Paragraph 88(1)(e.2) of the Act is amended by adding the following after subparagraph (viii):

(ix)  "subsection 89(5)" and "subsection 89(9)" were read as "subsection 89(6)" and "subsection 89(10)", respectively,

(3)  Subsections (1) and (2) apply to windings-up that begin after 2005.

   5.  (1)  Subsection 89(1) of the Act is amended by adding the following definitions in alphabetical order:

"eligible dividend"
« dividende déterminé »

"eligible dividend" means a taxable dividend that is received by a person resident in Canada, paid after 2005 by a corporation resident in Canada and designated, as provided under subsection (14), to be an eligible dividend;

"excessive eligible dividend designation"
« désignation excessive de dividende déterminé »

"excessive eligible dividend designation", made by a corporation in respect of an eligible dividend paid by the corporation at any time in a taxation year, means

(a)  unless paragraph (c) applies to the dividend, if the corporation is in the taxation year a Canadian-controlled private corporation or a deposit insurance corporation, the amount, if any, determined by the formula

(A – B) x C/A

where

A is the total of all amounts each of which is the amount of an eligible dividend paid by the corporation in the taxation year,

B is the corporation’s general rate income pool at the end of the taxation year, and

C is the amount of the eligible dividend,

(b)  unless paragraph (c) applies to the dividend, if the corporation is not a corporation described in paragraph (a), the amount, if any, determined by the formula

A x B/C

where

A is the lesser of

(i)  the total of all amounts each of which is an eligible dividend paid by the corporation at that time, and

(ii)  the corporation’s low rate income pool at that time, and

B is the amount of the eligible dividend, and

C is the amount determined under subparagraph (i) of the description of A, and

(c)  an amount equal to the amount of the eligible dividend, if it is reasonable to consider that the eligible dividend was paid in a transaction, or as part of a series of transactions, one of the main purposes of which was to artificially maintain or increase the corporation’s general rate income pool, or to artificially maintain or decrease the corporation’s low rate income pool;

"general rate income pool"
« compte de revenu à taux général »

"general rate income pool" at the end of a particular taxation year, of a taxable Canadian corporation that is a Canadian-controlled private corporation or a deposit insurance corporation in the particular taxation year, is the positive or negative amount determined by the formula

A – B

where

A is the positive or negative amount that would, but for any specified future tax consequences for the particular taxation year, be determined by the formula

C + 0.68(D – E – F) + G + H – I

where

C is the corporation’s general rate income pool at the end of its preceding taxation year,

D is

(a)  unless paragraph (b) applies, the corporation’s taxable income for the particular taxation year, and

(b)  if the corporation is a deposit insurance corporation in the particular taxation year, nil,

E is the amount determined by multiplying the amount, if any, deducted by the corporation under subsection 125(1) for the particular taxation year by the quotient obtained by dividing 100 by the rate of the deduction provided under that subsection for the particular taxation year,

F is

(a)  if the corporation is a Canadian-controlled private corporation in the particular taxation year, the corporation’s aggregate investment income for the particular taxation year, and

(b)  in any other case, nil,

G is the total of all amounts each of which is

(a)  an eligible dividend received by the corporation in the particular taxation year, or

(b)  an amount deductible under section 113 in computing the taxable income of the corporation for the particular taxation year,

H is the total of all amounts determined under subsections (4) to (7) in respect of the corporation for the particular taxation year, and

I is

(a)  unless paragraph (b) applies, the amount, if any, by which

(i)  the total of all amounts each of which is the amount of an eligible dividend paid by the corporation in its preceding taxation year

exceeds

(ii)  the total of all amounts each of which is an excessive eligible dividend designation made by the corporation in its preceding taxation year, or

(b)  if subsection (4) applies to the corporation in the particular taxation year, nil, and

B is 68% of the amount, if any, by which

(a)  the total of the corporation’s full rate taxable incomes (as would be defined in the definition "full rate taxable income" in subsection 123.4(1), if that definition were read without reference to its subparagraphs (a)(i) to (iii)) for the corporation’s preceding three taxation years, determined without reference to any specified future tax consequences, for those preceding taxation years, that arise in respect of the particular taxation year,

exceeds

(b)  the total of the corporation’s full rate taxable incomes (as would be defined in the definition "full rate taxable income" in subsection 123.4(1), if that definition were read without reference to its subparagraphs (a)(i) to (iii)) for those preceding taxation years.

"low rate income pool"
« compte de revenu à taux réduit »

"low rate income pool", at any particular time in a particular taxation year, of a corporation (in this definition referred to as the "non-CCPC") that is resident in Canada and is in the particular taxation year neither a Canadian-controlled private corporation nor a deposit insurance corporation, is the amount determined by the formula

(A + B + C + D + E + F) – (G + H)

where

A is the non-CCPC’s low rate income pool at the end of its preceding taxation year,

B is the total of all amounts each of which is an amount deductible under section 112 in computing the non-CCPC’s taxable income for the year in respect of a taxable dividend (other than an eligible dividend) that became payable, in the particular taxation year but before the particular time, to the non-CCPC by a corporation resident in Canada,

C is the total of all amounts determined under subsections (8) to (10) in respect of the non-CCPC for the particular taxation year,

D is

(a)  if the non-CCPC would, but for paragraph (d) of the definition "Canadian-controlled private corporation" in subsection 125(7), be a Canadian-controlled private corporation in its preceding taxation year, 80% of its aggregate investment income for its preceding taxation year, and

(b)  in any other case, nil,

E is

(a)  if the non-CCPC was not a Canadian-controlled private corporation in its preceding taxation year, 80 percent of the amount determined by multiplying the amount, if any, deducted by the corporation under subsection 125(1) for that preceding taxation year by the quotient obtained by dividing 100 by the rate of the deduction provided under that subsection for that preceding taxation year, and

(b)  in any other case, nil,

F is

(a)  if the non-CCPC was an investment corporation in its preceding taxation year, four times the amount, if any, deducted by it under subsection 130(1) for its preceding taxation year, and

(b)  in any other case, nil,

G is the total of all amounts each of which is a taxable dividend (other than an eligible dividend, a capital gains dividend within the meaning assigned by subsection 130.1(4) or 131(1), or a taxable dividend deductible by the non-CCPC under subsection 130.1(1) in computing its income for the particular taxation year or for its preceding taxation year) that became payable, in the particular taxation year but before the particular time, by the non-CCPC, and

H is the total of all amounts each of which is an excessive eligible dividend designation made by the non-CCPC in the particular taxation year but before the particular time;

(2)  Section 89 of the Act is amended by adding the following after subsection (3):

GRIP addition: becoming CCPC

(4)  If, in a particular taxation year, a corporation is a Canadian-controlled private corporation or a deposit insurance corporation but was, in its preceding taxation year, a corporation resident in Canada other than a Canadian-controlled private corporation or a deposit insurance corporation, there may be included in computing the corporation’s general rate income pool at the end of the particular taxation year, the amount determined by the formula

A + B + C – D – E – F – G – H

where

A is the total of all amounts each of which is the cost amount to the corporation of a property immediately before the end of its preceding taxation year,

B is the amount of any money of the corporation on hand immediately before the end of its preceding taxation year,

C is the amount, if any, by which

(a)  the total of all amounts that would, if the corporation had had unlimited income for its preceding taxation year from each business carried on, and each property held, by it in that preceding taxation year, have been deductible under subsection 111(1) in computing its taxable income for that preceding taxation year

exceeds

(b)  the total of all amounts deducted under subsection 111(1) in computing the corporation’s taxable income for that preceding taxation year,

D is the total of all amounts each of which is the amount of any debt owing by the corporation, or of any other obligation of the corporation to pay any amount, that was outstanding immediately before the end of its preceding taxation year,

E is the paid up capital, immediately before the end of its preceding taxation year, of all of the issued and outstanding shares of the capital stock of the corporation,

F is the total of all amounts each of which is a reserve deducted in computing the corporation’s income for its preceding taxation year,

G is the corporation’s capital dividend account, if any, immediately before the end of its preceding taxation year, and

H is the corporation’s low rate income pool immediately before the end of its preceding taxation year.

GRIP addition: post-amalgamation

(5)  If a Canadian-controlled private corporation or a deposit insurance corporation (in this subsection referred to as the "new corporation") is formed as a result of an amalgamation (within the meaning assigned by subsection 87(1)), there shall be included in computing the new corporation’s general rate income pool at the end of its first taxation year the total of all amounts each of which is

(a)  in respect of a predecessor corporation that was, in its taxation year that ended immediately before the amalgamation (in this paragraph referred to as its "last taxation year"), a Canadian-controlled private corporation or a deposit insurance corporation, the positive or negative amount determined in respect of the predecessor corporation by the formula

A – B

where

A is the predecessor corporation’s general rate income pool at the end of its last taxation year, and

B is the amount, if any, by which

(i)  the total of all amounts each of which is an eligible dividend paid by the predecessor corporation in its last taxation year

exceeds

(ii)  the total of all amounts each of which is an excessive eligible dividend designation made by the predecessor corporation in its last taxation year; or

(b)  in respect of a predecessor corporation (in this paragraph referred to as the "non-CCPC predecessor") that was, in its taxation year that ended immediately before the amalgamation (in this paragraph referred to as its "last taxation year"), not a Canadian-controlled private corporation or a deposit insurance corporation, the amount determined by the formula

A + B + C – D – E – F – G – H

where

A is the total of all amounts each of which is the cost amount to the non-CCPC predecessor of a property immediately before the end of its last taxation year,

B is the amount of any money of the non-CCPC predecessor on hand immediately before the end of its last taxation year,

C is the amount, if any, by which

(i)  the total of all amounts that would, if the non-CCPC predecessor had had unlimited income for its last taxation year from each business carried on, and each property held, by it in that last taxation year, have been deductible under subsection 111(1) in computing its taxable income for that last taxation year

exceeds

(ii)  the total of all amounts deducted under subsection 111(1) in computing the non-CCPC predecessor’s taxable income for its last taxation year,

D is the total of all amounts each of which is the amount of any debt owing by the non-CCPC predecessor, or of any other obligation of the non-CCPC predecessor to pay any amount, that was outstanding immediately before the end of its last taxation year,

E is the paid up capital, immediately before the end of its last taxation year, of all of the issued and outstanding shares of the capital stock of the non-CCPC predecessor,

F is the total of all amounts each of which is a reserve deducted in computing the non-CCPC predecessor’s income for its last taxation year,

G is the non-CCPC predecessor’s capital dividend account, if any, immediately before the end of its last taxation year, and

H is the non-CCPC predecessor’s low rate income pool immediately before the end of its last taxation year.

GRIP addition: post-winding-up

(6)  If subsection 88(1) applies to the winding-up of a subsidiary into a parent (within the meanings assigned by that subsection) that is a Canadian-controlled private corporation or a deposit insurance corporation, there shall be included in computing the parent’s general rate income pool at the end of its taxation year that immediately follows the taxation year during which it receives the assets of the subsidiary on the winding-up

(a)  if the subsidiary was, in its taxation year during which its assets were distributed to the parent on the winding-up (in this paragraph referred to as its "last taxation year"), a Canadian-controlled private corporation or a deposit insurance corporation, the positive or negative amount determined by the formula

A – B

where

A is the subsidiary’s general rate income pool at the end of its last taxation year, and

B is the amount, if any, by which

(i)  the total of all amounts each of which is an eligible dividend paid by the subsidiary in its last taxation year

exceeds

(ii)  the total of all amounts each of which is an excessive eligible dividend designation made by the subsidiary in its last taxation year; and

(b)  in any other case, the amount determined by the formula

A + B + C – D – E – F – G – H

where

A is the total of all amounts each of which is the cost amount to the subsidiary of a property immediately before the end of its taxation year during which its assets were distributed to the parent on the winding-up (in this paragraph referred to as its "last taxation year"),

B is the amount of any money of the subsidiary on hand immediately before the end of its last taxation year,

C is the amount, if any, by which

(i)  the total of all amounts that would, if the subsidiary had had unlimited income for its last taxation year from each business carried on, and each property held, by it in that last taxation year, have been deductible under subsection 111(1) in computing its taxable income for that last taxation year

exceeds

(ii)  the total of all amounts deducted under subsection 111(1) in computing the subsidiary’s taxable income for its last taxation year,

D is the total of all amounts each of which is the amount of any debt owing by the subsidiary, or of any other obligation of the subsidiary to pay any amount, that was outstanding immediately before the end of its last taxation year,

E is the paid up capital, immediately before the end of its last taxation year, of all of the issued and outstanding shares of the capital stock of the subsidiary,

F is the total of all amounts each of which is a reserve deducted in computing the subsidiary’s income for its last taxation year,

G is the subsidiary’s capital dividend account, if any, immediately before the end of its last taxation year, and

H is the subsidiary’s low rate income pool immediately before the end of its last taxation year.

GRIP addition for 2006

(7)  If a corporation was (or, but for an election under subsection (11), would have been), throughout its first taxation year that includes any part of January 1, 2006, a Canadian-controlled private corporation, there may be included in computing its general rate income pool at the end of its immediately preceding taxation year the amount determined by the formula

A – B

where

A is 63% of the total of all amounts each of which is the corporation’s full rate taxable income (as defined in subsection 123.4(1)) for a taxation year of the corporation that ended after 2000 and before 2006, and

B is the total of all amounts each of which is a taxable dividend paid by the corporation in those taxation years.

LRIP addition: ceasing to be CCPC

(8)  If, in a particular taxation year, a corporation is not a Canadian-controlled private corporation or a deposit insurance corporation but was, in its preceding taxation year, a Canadian-controlled private corporation or a deposit insurance corporation, there shall be included in computing the corporation’s low rate income pool at any time in the particular taxation year the amount determined by the formula

A + B + C – D – E – F – G – H

where

A is the total of all amounts each of which is the cost amount to the corporation of a property immediately before the end of its preceding taxation year,

B is the amount of any money of the corporation on hand immediately before the end of its preceding taxation year,

C is the amount, if any, by which

(a)  the total of all amounts that would, if the corporation had had unlimited income for its preceding taxation year from each business carried on, and each property held, by it in that preceding taxation year, have been deductible under subsection 111(1) in computing its taxable income for that preceding taxation year

exceeds

(b)  the total of all amounts deducted under subsection 111(1) in computing the corporation’s taxable income for its preceding taxation year,

D is the total of all amounts each of which is the amount of any debt owing by the corporation, or of any other obligation of the corporation to pay any amount, that was outstanding immediately before the end of its preceding taxation year,

E is the paid up capital, immediately before the end of its preceding taxation year, of all of the issued and outstanding shares of the capital stock of the corporation,

F is the total of all amounts each of which is a reserve deducted in computing the corporation’s income for its preceding taxation year,

G is

(a)  if the corporation is not a private corporation in the particular taxation year, the corporation’s capital dividend account, if any, immediately before the end of its preceding taxation year, and

(b)  in any other case, nil, and

H is the positive or negative amount determined by the formula

I – J

where

I is the corporation’s general rate income pool at the end of its preceding taxation year, and

J is the amount, if any, by which

(a)  the total of all amounts each of which is an eligible dividend paid by the corporation in its preceding taxation year

exceeds

(b)  the total of all amounts each of which is an excessive eligible dividend designation made by the corporation in its preceding taxation year.

LRIP addition: amalgamation

(9)  If a corporation that is resident in Canada and that is neither a Canadian-controlled private corporation nor a deposit insurance corporation (in this subsection referred to as the "new corporation") is formed as a result of the amalgamation or merger of two or more corporations one or more of which is a taxable Canadian corporation, there shall be included in computing the new corporation’s low rate income pool at any time in its first taxation year the total of all amounts each of which is

(a)  in respect of a predecessor corporation that was, in its taxation year that ended immediately before the amalgamation, neither a Canadian-controlled private corporation nor a deposit insurance corporation, the predecessor corporation’s low rate income pool at the end of that taxation year; and

(b)  in respect of a predecessor corporation (in this paragraph referred to as the "CCPC predecessor") that was, throughout its taxation year that ended immediately before the amalgamation (in this paragraph referred to as its "last taxation year"), a Canadian-controlled private corporation or a deposit insurance corporation, the amount determined by the formula

A + B + C – D – E – F – G – H

where

A is the total of all amounts each of which is the cost amount to the CCPC predecessor of a property immediately before the end of its last taxation year,

B is the amount of any money of the CCPC predecessor on hand immediately before the end of its last taxation year,

C is the amount, if any, by which

(i)  the total of all amounts that would, if the CCPC predecessor had had unlimited income for its last taxation year from each business carried on, and each property held, by it in that last taxation year, have been deductible under subsection 111(1) in computing its taxable income for that last taxation year

exceeds

(ii)  the total of all amounts deducted under subsection 111(1) in computing the CCPC predecessor’s taxable income for its last taxation year,

D is the total of all amounts each of which is the amount of any debt owing by the CCPC predecessor, or of any other obligation of the CCPC predecessor to pay any amount, that was outstanding immediately before the end of its last taxation year,

E is the paid up capital, immediately before the end of its last taxation year, of all of the issued and outstanding shares of the capital stock of the CCPC predecessor,

F is the total of all amounts each of which is a reserve deducted in computing the CCPC predecessor’s income for its last taxation year,

G is,

(i)  if the new corporation is not a private corporation in its first taxation year, the CCPC predecessor’s capital dividend account, if any, immediately before the end of its last taxation year, and

(ii)  in any other case, nil, and

H is the positive or negative amount determined by the formula

I – J

where

I is the CCPC predecessor’s general rate income pool at the end of its last taxation year, and

J is the amount, if any, by which

(i)  the total of all amounts each of which is an eligible dividend paid by the CCPC predecessor in its last taxation year

exceeds

(ii)  the total of all amounts each of which is an excessive eligible dividend designation made by the CCPC predecessor in its last taxation year.

LRIP addition: winding-up

(10)  If, in a particular taxation year, a corporation (in this subsection referred to as the "parent") is neither a Canadian-controlled private corporation nor a deposit insurance corporation and in the particular taxation year all or substantially all of the assets of another corporation (in this subsection referred to as the "subsidiary") were distributed to the parent on a dissolution or winding-up of the subsidiary, there shall be included in computing the parent’s low rate income pool at any time in the particular taxation year that is at or after the end of the subsidiary’s taxation year (in this subsection referred to as the subsidiary’s "last taxation year") during which its assets were distributed to the parent on the winding-up,

(a)  if the subsidiary was, in its last taxation year, neither a Canadian-controlled private corporation nor a deposit insurance corporation, the subsidiary’s low rate income pool immediately before the end of that taxation year; and

(b)  in any other case, the amount determined by the formula

A + B + C – D – E – F – G – H

where

A is the total of all amounts each of which is the cost amount to the subsidiary of a property immediately before the end of its last taxation year,

B is the amount of any money of the subsidiary on hand immediately before the end of its last taxation year,

C is the amount, if any, by which

(i)  the total of all amounts that would, if the subsidiary had had unlimited income for its last taxation year from each business carried on, and each property held, by it in that last taxation year, have been deductible under subsection 111(1) in computing its taxable income for that last taxation year

exceeds

(ii)  the total of all amounts deducted under subsection 111(1) in computing the subsidiary’s taxable income for its last taxation year,

D is the total of all amounts each of which is the amount of any debt owing by the subsidiary, or of any other obligation of the subsidiary to pay any amount, that was outstanding immediately before the end of its last taxation year,

E is the paid up capital, immediately before the end of its last taxation year, of all of the issued and outstanding shares of the capital stock of the subsidiary,

F is the total of all amounts each of which is a reserve deducted in computing the subsidiary’s income for its last taxation year,

G is,

(i)  if the parent is not a private corporation in the particular taxation year, the subsidiary’s capital dividend account, if any, immediately before the end of its last taxation year, and

(ii)  in any other case, nil, and

H is the positive or negative amount determined by the formula

I – J

where

I is the subsidiary’s general rate income pool at the end of its last taxation year, and

J is the amount, if any, by which

(i)  the total of all amounts each of which is an eligible dividend paid by the subsidiary in its last taxation year

exceeds

(ii)  the total of all amounts each of which is an excessive eligible dividend designation made by the subsidiary in its last taxation year.

Election: non-CCPC

(11)  Subject to subsection (12), a corporation that files with the Minister on or before its filing-due date for a particular taxation year an election in prescribed form to have this subsection apply is deemed for the purposes described in paragraph (d) of the definition "Canadian-controlled private corporation" in subsection 125(7) not to be a Canadian-controlled private corporation at any time in or after the particular taxation year.

Revoking election

(12)  If a corporation files with the Minister on or before its filing-due date for a particular taxation year a notice in prescribed form revoking, as of the end of the particular taxation year, an election described in subsection (11), the election ceases to apply to the corporation at the end of the particular taxation year.

Repeated elections: consent required

(13)  If a corporation has, under subsection (12), revoked an election, any subsequent election under subsection (11) or subsequent revocation under subsection (12) is invalid unless

(a)  the Minister consents in writing to the subsequent election or the subsequent revocation, as the case may be, and

(b)  the corporation complies with any conditions imposed by the Minister.

Dividend designation

(14)  A corporation designates a dividend it pays at any time to be an eligible dividend by notifying in writing at that time each person or partnership to whom it pays all or any part of the dividend that the dividend is an eligible dividend.

Meaning of expression "deposit insurance corporation"

(15)  For the purposes of paragraphs 87(2)(vv) and (ww) (including, for greater certainty, in applying those paragraphs as provided under paragraph 88(1)(e.2)), the definitions "excessive eligible dividend designation", "general rate income pool", and "low rate income pool" in subsection (1), and subsections (4) to (6) and (8) to (10), a corporation is a deposit insurance corporation if it would be a deposit insurance corporation as defined in the definition "deposit insurance corporation" in subsection 137.1(5) were that definition read without reference to its paragraph (b) and were this Act read without reference to subsection 137.1(5.1).

(3)  Subsections (1) and (2) apply to taxation years that end after 2005 except that, in respect of a dividend paid before this Act is assented to, a designation under subsection 89(14) of the Act, as enacted by subsection (2), is deemed to have been made in a timely manner if it is made on or before the day that is 90 days after the day on which this Act is assented to.

   6.  (1)  Subsection 121 of the Act is replaced by the following:

Deduction for taxable dividends

   121.  There may be deducted from the tax otherwise payable under this Part by an individual for a taxation year the total of

(a)  2/3 of the amount, if any, that is required by subparagraph 82(1)(b)(i) to be included in computing the individual’s income for the year; and

(b)  11/18 of the amount, if any, that is required by subparagraph 82(1)(b)(ii) to be included in computing the individual’s income for the year.

(2)  Subsection (1) applies to dividends paid after 2005.

   7.  (1)  The definition "Canadian-controlled private corporation" in subsection 125(7) of the Act is amended by striking out the word "or" at the end of paragraph (b), by adding the word "or" at the end of paragraph (c) and by adding the following after paragraph (c):

(d)  in applying subsection (1), paragraphs 87(2)(vv) and (ww) (including, for greater certainty, in applying those paragraphs as provided under paragraph 88(1)(e.2)), the definitions "excessive eligible dividend designation", "general rate income pool" and "low rate income pool" in subsection 89(1) and subsections 89(4) to (6), (8) to (10) and 249(4.1), a corporation that has made an election under subsection 89(11) and that has not revoked the election under subsection 89(12);

(2)  Subsection (1) applies to taxation years that end after 2005.

   8.  (1)  Paragraph 127.52(1)(f) of the Act is replaced by the following:

(f)  subsection 82(1) were read without reference to paragraph 82(1)(b);

(2)  Subsection (1) applies to dividends paid after 2005.

   9.  (1)  The Act is amended by adding the following after section 185:

PART III.1

ADDITIONAL TAX ON EXCESSIVE ELIGIBLE DIVIDEND DESIGNATIONS

Tax on excessive eligible dividend designations

   185.1  (1)  A corporation that has made an excessive eligible dividend designation in respect of an eligible dividend paid by it at any time in a taxation year shall, on or before the corporation’s balance-due day for the taxation year, pay a tax under this Part for the taxation year equal to the total of

(a)  20% of the excessive eligible dividend designation, and

(b)  if the excessive eligible dividend designation arises because of the application of paragraph (c) of the definition "excessive eligible dividend designation" in subsection 89(1), 10% of the excessive eligible dividend designation.

Election to treat excessive eligible dividend designation as an ordinary dividend

(2)  If, in respect of an excessive eligible dividend designation that is not described in paragraph (1)(b) and that is made by a corporation in respect of an eligible dividend (in this subsection and subsection (3) referred to as the "original dividend") paid by it at a particular time, the corporation would, if this Act were read without reference to this subsection, be required to pay a tax under subsection (1), and it elects in prescribed manner on or before the day that is 90 days after the day of mailing the notice of assessment in respect of that tax that would otherwise be payable under subsection (1), the following rules apply:

(a)  notwithstanding the definition "eligible dividend" in subsection 89(1), the amount of the original dividend paid by the corporation is deemed to be the amount, if any, by which

(i)  the amount of the original dividend, determined without reference to this subsection

exceeds

(ii)  the amount claimed by the corporation in the election not exceeding the excessive eligible dividend designation, determined without reference to this subsection;

(b)  an amount equal to the amount claimed by the corporation in the election is deemed to be a separate taxable dividend (other than an eligible dividend) that was paid by the corporation immediately before the particular time; and

(c)  each shareholder of the corporation who at the particular time held any of the issued shares of the class of shares in respect of which the original dividend was paid is deemed

(i)  not to have received the original dividend, and

(ii)  to have received at the particular time

(A)  as an eligible dividend, the shareholder’s pro-rata portion of the amount of any dividend determined under paragraph (a), and

(B)  as a taxable dividend (other than an eligible dividend) the shareholder’s pro-rata portion of the amount of any dividend determined under paragraph (b); and

(d)  a shareholder’s pro-rata portion of a dividend paid at any time on a class of the shares of the capital stock of a corporation is that proportion of the dividend that the number of shares of that class held by the shareholder at that time is of the number of shares of that class outstanding at that time.

Concurrence with election

(3)  An election under subsection (2) in respect of an original dividend is valid only if

(a)  it is made with the concurrence of the corporation and all its shareholders

(i)  who received or were entitled to receive all or any portion of the original dividend, and

(ii)  whose addresses were known to the corporation; and

(b)  either

(i)  it is made on or before the day that is 30 months after the day on which the original dividend was paid, or

(ii)  each shareholder described in subparagraph (a)(i) concurs with the election, in which case, notwithstanding subsections 152(4) to (5), any assessment of the tax, interest and penalties payable by each of those shareholders for any taxation year shall be made that is necessary to take the corporation’s election into account.

Exception for non-taxable shareholders

(4)   If each shareholder who, in respect of an election made under subsection (2), is deemed by subsection (2) to have received a dividend at a particular time is also, at the particular time, a person all of whose taxable income is exempt from tax under Part I,

(a)  subsection (3) does not apply to the election; and

(b)  the election is valid only if it is made on or before the day that is 30 months after the day on which the original dividend was paid.

Return

   185.2  (1)  Every corporation resident in Canada that pays a taxable dividend (other than a capital gains dividend within the meaning assigned by subsection 130.1(4) or 131(1)) in a taxation year shall file with the Minister, not later than the corporation’s filing-due date for the taxation year, a return for the year under this Part in prescribed form containing an estimate of the taxes payable by it under this Part for the taxation year.

Provisions applicable to Part

(2)  Subsections 150(2) and (3), sections 151, 152, 158 and 159, subsections 161(1) and (11), sections 162 to 167 and Division J of Part I are applicable to this Part with such modifications as the circumstances require.

Joint and several liability from excessive eligible dividend designations

(3)   Without limiting the liability of any person under any other provision of this Act, if a Canadian-controlled private corporation or a deposit insurance corporation pays an eligible dividend in respect of which it has made an excessive eligible dividend designation to a shareholder with whom it does not deal at arm’s length, the shareholder is jointly and severally, or solidarily, liable with the corporation to pay that proportion of the corporation’s tax payable under this Part because of the designation that the amount of the eligible dividend received by the shareholder is of the total of all amounts each of which is a dividend in respect of which the designation was made.

Assessment

(4)  The Minister may, at any time after the last day on which a corporation may make an election under subsection 185.1(2) in respect of an excessive eligible dividend designation, assess a person in respect of any amount payable under subsection (3) in respect of the designation, and the provisions of Division I of Part I (including, for greater certainty, the provisions in respect of interest payable) apply, with any modifications that the circumstances require, to an assessment made under this subsection as though it were made under section 152.

Rules applicable

(5)   Where under subsection (3) a corporation and a shareholder have become jointly and severally, or solidarily, liable to pay part or all of the corporation’s tax payable under this Part in respect of an excessive eligible dividend designation described in subsection (3),

(a)  a payment at any time by the shareholder on account of the liability shall, to the extent of the payment, discharge their liability after that time; and

(b)  a payment at any time by the corporation on account of its liability shall discharge the shareholder’s liability only to the extent of the amount determined by the formula

(A – B) × C/D

where

A is the total of

(i)  the amount of the corporation’s liability, immediately before that time, under this Part in respect of the designation, and

(ii)  the amount of the payment,

B is the amount of the corporation’s liability, immediately before that time, under this Act,

C is the amount of the eligible dividend received by the shareholder, and

D the total of all amounts each of which is a dividend in respect of which the designation was made.

(2)  Subsection (1) applies to taxation years that end after 2005 except that, in respect of a dividend paid before this Act is assented to, an election under subsection 185.1(2) of the Act, as enacted by subsection (1), is deemed to have been made in a timely manner if it is made on or before the day that is 30 months after the day on which this Act is assented to.

   10.  (1)  Subsection 248(1) of the Act is amended by adding the following in alphabetical order:

"eligible dividend"
« dividende déterminé »

"eligible dividend" has the meaning assigned by subsection 89(1);

"excessive eligible dividend designation"
« désignation excessive de dividende déterminé »

"excessive eligible dividend designation" has the meaning assigned by subsection 89(1);

"general rate income pool"
« compte de revenu à taux général »

"general rate income pool" has the meaning assigned by subsection 89(1);

"low rate income pool"
« compte de revenu à taux réduit »

"low rate income pool" has the meaning assigned by subsection 89(1);

(2)  Subsection (1) applies to taxation years that end after 2005.

   11.  (1)  Section 249 of the Act is amended by adding the following after subsection (4):

Year end on status change

(4.1)  If at any time a corporation becomes or ceases to be a Canadian-controlled private corporation, otherwise than because of an acquisition of control to which subsection (4) would, if this Act were read without reference to this subsection, apply,

(a)  subject to paragraph (c), the corporation’s taxation year that would, if this Act were read without reference to this subsection, include that time is deemed to end immediately before that time;

(b)  a new taxation year of the corporation is deemed to begin at that time;

(c)  notwithstanding subsections (1) and (3), the corporation’s taxation year that would, if this Act were read without reference to this subsection, have been its last taxation year that ended before that time is deemed instead to end immediately before that time if

(i)  were this Act read without reference to this paragraph, that taxation year would, otherwise than because of paragraph 128(1)(d), section 128.1, and paragraphs 142.6(1)(a) or 149(10)(a), have ended within the 7-day period that ended immediately before that time,

(ii)  within that 7-day period no person or group of persons acquired control of the corporation, and the corporation did not become or cease to be a Canadian-controlled private corporation, and

(iii)  the corporation elects, in its return of income under Part I for that taxation year to have this paragraph apply; and

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

(2)  Subsection (1) applies to taxation years that end after 2005.

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