Archived - Notice of Ways and Means Motion to introduce an Act to amend the Income Tax Act, including amendments in relation to foreign investment entities and non-resident trusts, and to provide for the bijural expression of the provisions of that Act: 2

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"proceeds of disposition"
« produit de disposition »

"proceeds of disposition", from a disposition of a participating interest, includes

(a)  where the participating interest is an interest in a life insurance policy, subject to
paragraph (11)(e), proceeds of the disposition within the meaning assigned by subsection 148(9); and

(b)  in any other case, proceeds of disposition within the meaning assigned by section 54.

« 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)  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,

(ii)  participating interests that are identical to the particular participating interest are listed on a prescribed stock exchange throughout the period, in the taxpayer's taxation year that includes that time, during which the taxpayer held the particular participating interest,

(iii)  the identical participating interests were traded on at least 10 consecutive trading days on that stock exchange in the period that begins 30 days before that time, and

(iv)  the amount (or the average of the amounts) at which the identical participating interests were last traded on each trading day that is included in the latest of the 10 consecutive trading days in the period that begins 30 days before that time is published for public use; 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 (or such other time that is set out in the terms of the participating interest at the time it was issued and that is within 60 days of the time that 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 the taxpayer's proceeds of disposition from the taxpayer's last disposition of the participating interest in the taxation year; 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 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 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 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.

« 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 that may reasonably be considered to be satisfactory to make the determination is not received by the Minister within 120 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 from a property that is the participating interest,

(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 the amount, if any, by which the total of

(A)  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)  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

(C)  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 paragraph (c) and subsection (4), 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 subsections (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 or fair market value of the property,

(ii)  income from the property, profits from the property, revenue from the property or 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 all the tracked properties in respect of the particular participating interest cannot be attributed, either directly or indirectly, to the fair market value of all tracked properties in respect of the particular participating interest (throughout the period that those properties are tracked properties in respect of the particular participating interest) that

(i)  are shares of the capital stock of a particular foreign affiliate of the taxpayer that would, if those shares were held by the taxpayer throughout the period (referred to in this subparagraph as the "tracked property period") that those shares are tracked properties in respect of the particular participating interest, be

(A)  throughout the tracked property period, a qualifying interest (within the meaning assigned by paragraph 95(2)(m)) of the taxpayer in the particular foreign affiliate, and

(B)  throughout the tracked property period, a participating interest of the taxpayer in a qualifying entity, and

(ii)  are not tracked properties 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 business 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 (3), paragraph (4)(a) 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 particular taxation year in respect of the 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 has no rights (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 an amount under the policy, other than rights to receive an amount of

(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

(ii)  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 particular 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 taxation year the amount, if any, required under section 12.2 to be included in computing the taxpayer's income for the particular taxation year in respect of the interest;

(d)  for the purpose of subsections (1) and (4), where the interest is held by the taxpayer at a particular time that is the beginning of the particular taxation year, subsection (4) applies for the purpose of computing the taxpayer's income for the particular taxation year in respect of the interest, and subsection (4) did not apply for the purpose of computing the taxpayer's income for the taxpayer's preceding taxation year in respect of the interest, the taxpayer is deemed to have acquired the interest at the particular time at a cost equal to

A + B

where

A is the fair market value at the particular time of the interest, and

B is, where the taxpayer elects in prescribed form filed with the taxpayer's return of income under this Part for the particular taxation year, the amount determined by the formula

C - D

where

C is the total of all amounts each of which is a premium paid before the particular time in respect of the interest by the taxpayer, to the extent that the premium was paid at a time when the taxpayer was resident in Canada and not an exempt taxpayer, cannot be refunded (otherwise than on termination or cancellation of the policy) and was not paid in respect of a benefit described in any of subparagraphs (c)(i) to (vii) of the definition "premium" in subsection 148(9), and

D is the total of

(i)  the fair market value at the particular time of the interest, and

(ii)  the total of all amounts each of which is an amount received before the particular time in respect of the interest by the taxpayer at a time when the taxpayer was resident in Canada and not an exempt taxpayer;

(e)  for the purposes of this subsection and subsections (1) and (4), each of the following amounts in respect of the interest is to be determined without reference to benefits under the policy that are paid, payable or anticipated to be payable as a consequence only of the occurrence of the risks insured under the policy:

(i)  the fair market value of the interest,

(ii)  the proceeds of disposition of the interest, and

(iii)  each amount paid to a beneficiary in respect of the interest;

(f)  for the purposes of subsections (1) and (4),

(i)  a payment of a premium under the policy by the taxpayer in the particular taxation year - to the extent that the premium cannot be refunded (otherwise than on termination or cancellation of the policy) and is not a premium in respect of a benefit described in any of subparagraphs (c)(i) to (vii) of the definition "premium" in subsection 148(9) - is deemed to be an acquisition in the particular taxation year by the taxpayer of a part of the interest in the policy at a cost equal to the amount so paid,

(ii)  a payment made by the taxpayer in the particular taxation year in respect of the principal amount of a loan made under the policy in the particular taxation year (or a preceding taxation year of the taxpayer) - to the extent that the loan was included in the amount in respect of the interest determined for C in applying the definition "mark-to-market formula" in subsection (1) for the taxation year in which the loan was made - is deemed to be an acquisition in the particular taxation year by the taxpayer of a part of the interest in the policy at a cost equal to the amount so paid, and

(iii)  an amount (other than an amount described in subparagraph (i) or (ii)) paid by the taxpayer in the particular taxation year, to an entity or individual other than the insurer that issued the policy, to acquire in the particular taxation year an interest in the policy from the entity or individual, is deemed to be an acquisition in the particular taxation year by the taxpayer of a part of the interest in the policy at a cost equal to the amount so paid;

(g)  for the purposes of subsections (1) and (4), if paragraph (d) deems the taxpayer to have acquired the interest at a particular time in the particular taxation year or an earlier taxation year, in computing the taxpayer's proceeds of disposition from the taxpayer's first disposition of the interest after the particular time, the taxpayer is deemed - in addition to any other proceeds of disposition from the disposition of the interest - to be entitled to receive an amount of proceeds from the disposition of the interest equal to the amount determined by the formula

A - B

where

A is the total of

(i)  the fair market value at the particular time of the interest, and

(ii)  the total of all amounts each of which is an amount received before the particular time in respect of the interest by the taxpayer at a time when the taxpayer was resident in Canada and not an exempt taxpayer, and

B is the total of all amounts each of which is a premium paid before the particular time in respect of the interest by the taxpayer, to the extent that the premium was paid at a time when the taxpayer was resident in Canada and not an exempt taxpayer, cannot be refunded (otherwise than on termination or cancellation of the policy) and was not paid in respect of a benefit described in any of subparagraphs (c)(i) to (vii) of the definition "premium" in subsection 148(9); and

(h)  if the interest is held by the taxpayer at a time that is the end of the particular taxation year, subsection (4) applies for the purpose of computing the taxpayer's income for the particular taxation year in respect of the interest, and subsection (4) does not apply for the purpose of computing the taxpayer's income for the taxpayer's following taxation year (in this paragraph referred to as "the following taxation year") in respect of the interest, the cost to the taxpayer of the interest shall be determined at or after the particular time that is the beginning of the following taxation year as if the taxpayer had acquired the interest at the particular time at a cost equal to the amount determined by the formula

A + B - C

where

A is the fair market value at the end of the particular taxation year of the interest,

B is the amount that would be determined under subparagraph (4)(a)(ii) in respect of the interest for the particular taxation year if that subparagraph were read without reference to clause (A) of that subparagraph, and

C is the amount that would, if paragraph (g) had applied at the end of the particular taxation year in respect of the interest, be determined at the end of the particular taxation year in respect of the interest by the formula under that paragraph.

Adjustments where mark-to-market system no longer applies

(12)  If a participating interest in a non-resident entity is held by a taxpayer at the end of a particular taxation year of the taxpayer, subsection (4) applies for the purpose of computing the taxpayer's income for the particular taxation year in respect of the participating interest, and that subsection does not apply (otherwise than solely because the taxpayer became an exempt taxpayer or ceased to reside in Canada) for the purpose of computing the taxpayer's income for the taxpayer's following taxation year (in this paragraph referred to as "the following taxation year") in respect of the participating interest

(a)  the taxpayer's cost of the participating interest at any time after the end of the particular taxation year is deemed to be the amount determined by the formula

A + B - C

where

A is the amount that would, if this Act were read without reference to this section, be determined to be the taxpayer's cost of the participating interest at the end of the particular taxation year,

B is the amount, if any, by which the amount determined under subparagraph 94.4(2)(a)(ii) in respect of the taxpayer in respect of the participating interest for the particular taxation year exceeds the amount determined under paragraph 94.4(2)(a) in respect of the taxpayer in respect of the participating interest for the particular taxation year, and

C is the amount, if any, by which

(i)  the total of

(A)  the amount determined under paragraph 94.4(2)(a) in respect of the taxpayer in respect of the participating interest for the particular taxation year, and

(B)  the amount determined under clause 94.4(2)(a)(ii)(B) in respect of the taxpayer in respect of the participating interest for the particular taxation year,

exceeds

(ii)  the amount determined under clause 94.4(2)(a)(ii)(A) in respect of the taxpayer in respect of the participating interest for the particular taxation year; and

(b)  in computing, at any time after the end of the particular taxation year, the adjusted cost base to the taxpayer of the participating interest, paragraph 94.4(2)(b) shall not apply to the taxpayer in respect of the participating interest.

Cost adjustment where disposition in year mark-to-market system applies

(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 (other than a disposition deemed to arise because of subsection 128.1(4) or 149(10)) and subsection (4) applies for the purpose of computing the taxpayer's income for the taxation year in respect of the participating interest, the taxpayer's cost of the participating interest immediately before the particular time is deemed to be (except for the purpose of this section) its fair market value at the particular time.

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 subsection (12) has applied to determine the cost at any particular time after the end of a particular taxation year to a taxpayer of a participating interest, in applying subsection (4) for the purpose of computing the taxpayer's income in respect of the participating interest for a taxation year that is after the particular taxation year, 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 paragraph (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 definitions in this subsection, 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 2006 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 particular taxpayer, means the amount determined by the formula

A × 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 subparagraph (i) of that paragraph,

(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) × 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 × (B/C) × D

where

A is

(a)  if that taxation year of the taxpayer begins after 2006, 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 2006, 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 that may reasonably be considered to be satisfactory to make the determination is not received by the Minister within 120 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)  subsection 94.2(9) applies to the taxpayer for the particular taxation year in respect of the particular participating interest,

(vii)  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

(viii)  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.

(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) that was used in computing the taxpayer's loss allocation in respect of the participating interest for the particular taxation year.

Foreign Investment Entities - Relief from Double Taxation

Definitions and rules of application

94.4  (1)  In this section,

(a)  the definitions in subsections 94.1(1) and 94.2(1) apply; and

(b)  subsection 94.1(2) applies.

Prevention of double taxation

(2)  If one or more amounts become, at a particular time in a particular taxation year of a taxpayer that begins after 2006 or in a preceding taxation year of the taxpayer that begins after 2006, payable to the taxpayer from a particular entity or another entity in respect of a participating interest in the particular entity (other than an amount that is proceeds of disposition from a disposition of the participating interest or of a part of it), and the taxpayer is at the particular time resident in Canada,

(a)  there may be deducted in computing the taxpayer's income for the particular taxation year in respect of the participating interest the lesser of

(i)  the amount, if any, by which

(A)  the total of all amounts each of which is an amount that is in respect of any of those amounts payable and that is included (otherwise than because of the description of C in the definition "mark-to-market formula" in subsection 94.2(1)) in computing the taxpayer's income for any of those taxation years

exceeds

(B)  the total of all amounts each of which is an amount, in respect of the participating interest,

(I)  that is deducted under this paragraph in computing the taxpayer's income for any of those preceding taxation years, or

(II)  where subsection 94.3(3) applied to the taxpayer in respect of the participating interest for any of those taxation years, that would, if the amount determined for D in applying the definition "specified tax allocation" in subsection 94.3(1) were the taxpayer's relevant tax factor (as defined in subsection 95(1)) minus 1, be the specified tax allocation of the taxpayer in respect of the participating interest for each taxation year of the particular entity that ends in one of those taxation years for which subsection 94.3(3) applied to the taxpayer in respect of the participating interest, and

(ii)  the amount, if any, by which

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

(I)  an amount, in respect of the participating interest, that is, or would have been, if this Act were read without reference to subsection 94.2(20), included under subsection 94.1(4) or 94.2(4) in computing the taxpayer's income for any of those taxation years, or

(II)  the amount required by paragraph 94.3(5)(a) to be added in computing at the particular time the adjusted cost base to the taxpayer of the participating interest,

exceeds

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

(I)  the amount required by paragraph 94.3(5)(b) to be deducted in computing at the particular time the adjusted cost base to the taxpayer of the participating interest,

(II)  an amount, in respect of the participating interest that is, or would have been, if this Act were read without reference to subsection 94.2(20), deducted under subsection 94.2(4) in computing the taxpayer's income for any of those taxation years, or

(III)  an amount, in respect of the participating interest that is deducted under this paragraph in computing the taxpayer's income for any of those preceding taxation years; and

(b)  in computing after the particular time the adjusted cost base to the taxpayer of the participating interest there shall be deducted the amount deductible under paragraph (a) in computing the taxpayer's income for the particular taxation year in respect of the participating interest.

Prevention of double taxation - foreign tax credit unavailable

(3)  If one or more particular amounts become payable to a taxpayer in a particular taxation year of the taxpayer, the taxpayer includes the particular amounts in computing its income for the particular taxation year, and the particular amounts are included in computing, in respect of a particular participating interest of the taxpayer, an amount deducted by the taxpayer under subsection (2) in computing its income for the particular taxation year, the taxpayer may deduct in computing the taxpayer's income for the particular taxation year in respect of the participating interest the amount determined by the formula

A × B

where

A is

(a)  nil, if the taxpayer is a corporation and the particular amounts are income from a share of the capital stock of a foreign affiliate of the taxpayer, and

(b)  the taxpayer's relevant tax factor (as defined by subsection 95(1)) for the particular taxation year, in any other case; and

B is the lesser of

(a)  15% of the total of all amounts, if any, determined under subparagraph (2)(a)(ii) in computing the amount deductible by the taxpayer, in respect of the particular participating interest and the particular amounts, under subsection (2) in computing its income for the particular taxation year, and

(b)  the amount that

(i)  is the part of the non-business income tax (as defined by subsection 126(7)) paid by the taxpayer for the particular taxation year to a government of a country other than Canada that is in respect of the particular amounts, and

(ii)  would be deductible under subsection 126(1) by the taxpayer from the tax for the particular taxation year otherwise payable under this Part (within the meaning assigned by paragraph (a) of the definition "tax for the taxation year otherwise payable under this Part" in subsection 126(7)) by the taxpayer if

(A)  the taxpayer had not deducted an amount, in respect of the particular amounts, under subsection (2), and

(B)  paragraph 126(1.2)(a) did not apply.

(2)  Subsection (1) applies to taxation years that begin after 2006, except that any election or form referred to in any of sections 94.1 to 94.3 of the Act, as enacted by subsection (1), made by a taxpayer is deemed to have been filed with the Minister of National Revenue

(a)  on a timely basis if it is filed with the Minister of National Revenue on or before the taxpayer's filing-due date for the taxpayer's taxation year that includes the day on which this Act is assented to; and

(b)  in the taxpayer's return of income for the taxpayer's taxation year identified by the taxpayer in the election, if it is filed with the Minister of National Revenue in writing in the taxpayer's return of income for the taxpayer's taxation year that includes the day on which this Act is assented to.

19.  (1)  The portion of subsection 95(1) of the Act before the definition "active business" is replaced by the following:

Definitions re foreign affiliates

95.  (1)  In this subdivision (other than in sections 94 to 94.4),

(2)  The portion of the definition "controlled foreign affiliate" in subsection 95(1) of the Act before paragraph (a) is replaced by the following:

"controlled foreign affiliate"
« société étrangère affiliée contrôlée »

"controlled foreign affiliate", at any time of a taxpayer resident in Canada, means a foreign affiliate of the taxpayer that is, at that time, a controlled foreign affiliate of the taxpayer because of paragraph 94.1(2)(h) or that is, at that time, controlled by

(3)  The formula in the definition "foreign accrual property income" in subsection 95(1) of the Act is replaced by the following:

(A + A.1 + A.2 + B) - (D + E + F + G + H)

(4)  The description of C in the definition "foreign accrual property income" in subsection 95(1) of the Act is repealed.

(5)  The definition "relevant tax factor" in subsection 95(1) of the Act is replaced by the following:

"relevant tax factor"
« facteur fiscal approprié »

"relevant tax factor", of a person or partnership for a taxation year, means

(a)  in the case of a corporation, or of a partnership all the members of which, other than
non-resident persons, are corporations, the quotient obtained by the formula

1/(A - B)

where

A is the percentage set out in paragraph 123(1)(a), and

B is

(i)  in the case of a corporation, the percentage that is the corporation's general rate reduction percentage (as defined by section 123.4) for the taxation year, and

(ii)  in the case of a partnership, the percentage that would be determined under subparagraph (i) in respect of the partnership if the partnership were a corporation whose taxation year is the partnership's fiscal period, and

(b)  in any other case, 2.2;

(6)  The portion of subsection 95(2) of the Act before paragraph (a) is replaced by the following:

Application - foreign affiliates

(2)  For the purposes of this subdivision (other than sections 94 to 94.4),

(7)  Subsection 95(2) of the Act is amended by adding the following after paragraph (g.2):

(g.3)  if, in a particular taxation year of a particular foreign affiliate of a particular taxpayer that ends in a taxation year of the particular taxpayer the particular foreign affiliate holds a participating interest in a particular non-resident entity (in this paragraph as defined by subsection 94.1(1)), in computing the foreign accrual property income of the particular foreign affiliate in respect of the particular taxpayer for the particular taxation year, sections 94.1 to 94.4 apply to the particular foreign affiliate in respect of the participating interest as if

(i)  the particular foreign affiliate were a taxpayer resident in Canada throughout the particular taxation year,

(ii)  subparagraph (a)(i) of the definition "exempt interest" in subsection 94.1(1) applied to the particular foreign affiliate in respect of the participating interest only where

(A)  the particular foreign affiliate is a controlled foreign affiliate of the particular taxpayer at the end of the particular taxation year, and

(B)  the particular non-resident entity is a controlled foreign affiliate of the particular taxpayer at the end of the particular non-resident entity's taxation year that ends in the particular taxation year,

(iii)  an exempt interest (in this paragraph, as defined by subsection 94.1(1)) of the particular foreign affiliate in a non-resident entity included a participating interest

(A)  that is held, in the particular taxation year, by the particular foreign affiliate, and

(B)  that is, throughout the period, in the particular taxation year, during which the particular foreign affiliate held the participating interest, property used or held by the particular foreign affiliate principally for the purpose of gaining or producing income from a business that is not an investment business,

(iv)  the definition "fresh-start year" in subsection 94.3(1) did not apply and a reference in section 94.3 to a fresh-start year, of the particular non-resident entity in respect of the particular foreign affiliate, were a reference to a taxation year of the particular non-resident entity

(A)  that ends in a taxation year of the particular foreign affiliate that begins after 2006,

(B)  that begins immediately after a preceding taxation year of the particular non-resident entity at the end of which

(I)  the particular non-resident entity was not a foreign investment entity,

(II)  the particular foreign affiliate did not hold a participating interest in the particular
non-resident entity (other than an exempt interest), or

(III)  the particular foreign affiliate was not a controlled foreign affiliate of the particular taxpayer,

(C)  at the end of which the particular non-resident entity is a foreign investment entity in which the particular foreign affiliate holds a participating interest that is not an exempt interest, and

(D)  at any time in which the particular foreign affiliate is a controlled foreign affiliate of the particular taxpayer,

(v)  an election for the particular taxation year made under paragraph (a) of the definition "carrying value", or paragraph (a) of the definition "financial statements", in subsection 94.1(1), paragraph 94.1(2)(e), (h) or (j), subparagraph (a)(iii) of the description of D in the definition "mark-to-market formula" in subsection 94.2(1), subparagraph 94.2(2)(b)(i) or 94.2(3)(b)(iii) or paragraph 94.3(3)(b) were required to be filed under that provision in respect of the particular foreign affiliate for the purpose of computing the particular foreign affiliate's foreign accrual property income in respect of the particular taxpayer , by, and only by, the particular taxpayer, with the Minister on or before the filing-due date of the particular taxpayer for the particular taxpayer's taxation year in which the particular taxation year ends,

(vi)  the Minister were required, in sending a written demand under subparagraph 94.1(2)(e)(iii), any of paragraphs 94.1(2)(i) or (p) to (r) or 94.2(2)(d), or subparagraph 94.3(2)(b)(iii), to send the demand to the particular taxpayer,

(vii)  the amount determined under the definition "deferral amount" in subsection 94.2(1) did not include the portion of that amount that can reasonably be considered to have accrued during the period that the particular foreign affiliate was not a foreign affiliate of any person described in any of subparagraphs (f)(iii) to (vii),

(viii)  the reference in subsection 94.2(19) to "in computing the capital dividend account of the corporation" were read in respect of the particular foreign affiliate as a reference to "and the corporation is a foreign affiliate, of a taxpayer, to which paragraph 95(2)(g.3) applies, in computing the amount prescribed to be the foreign affiliate's exempt surplus and taxable surplus in respect of the taxpayer",

(ix)  any form, information or notification, in respect of a participating interest in a non-resident entity held in the particular taxation year by the particular foreign affiliate, that is required under any of sections 94.1 to 94.4 to be filed or included with the particular foreign affiliate's return of income for the particular taxation year were required to be filed or included with, and only with, the particular taxpayer's return of income for the particular taxpayer's taxation year in which the particular taxation year ends, and

(x)  designations and notifications made, and information provided, by the particular taxpayer in a form referred to in subparagraph (ix) were made or provided by the particular foreign affiliate;

(8)  Subsection 95(5) of the Act is replaced by the following:

Income bonds or debentures issued by foreign affiliates

(5)  For the purposes of this subdivision (other than sections 94 to 94.4), an income bond or income debenture issued by a non-resident corporation is deemed to be a share of the capital stock of the corporation unless any interest or other similar periodic amount paid by the corporation on or in respect of the bond or debenture was, under the laws of the country in which the corporation was resident, deductible in computing the amount on which the corporation was liable to pay income or profits tax imposed by the government of that country.

(9)  The portion of subsection 95(6) of the Act before paragraph (a) is replaced by the following:

Where rights or shares issued, acquired or disposed of to avoid tax

(6)  For the purposes of this subdivision (other than sections 90 and 94 to 94.4),

(10)  Subsection 95(7) of the Act is replaced by the following:

Stock dividends from foreign affiliates

(7)  For the purposes of subsection 52(3) and this subdivision (other than sections 94 to 94.4), the amount of any stock dividend paid by a foreign affiliate of a corporation resident in Canada is deemed to be, in respect of the corporation, nil.

(11)  Subsections (1) to (4) and (6) to (10) apply to taxation years, of a foreign affiliate of a taxpayer, that begin after 2006.

(12)  Subsection (5) applies to the 2002 and subsequent taxation years.

20.  (1)  Paragraph 96(1)(d) of the Act is amended by striking out the word "and" at the end of subparagraph (i), by adding the word "and" at the end of subparagraph (ii) and by adding the following after subparagraph (ii):

(iii)  where at any time in the taxation year (in this subparagraph referred to as the "particular taxation year") the partnership's property includes a participating interest in a particular non-resident entity (in this subparagraph as defined by subsection 94.1(1)), sections 94.1 to 94.4 apply to the partnership for the particular taxation year in respect of the participating interest

(A)  where the taxpayer is resident in Canada and, at the end of the particular non-resident entity's taxation years that end in the particular taxation year of the partnership, the particular non-resident entity is not a controlled foreign affiliate of the partnership, as if the participating interest were not an exempt interest that is described by subparagraph (a)(i) of the definition "exempt interest" in subsection 94.1(1),

(B)  where the taxpayer is a foreign affiliate (referred to in this clause as the "foreign affiliate") of another taxpayer resident in Canada at the end of the foreign affiliate's taxation years that end in a particular taxation year of the other taxpayer, as if, in computing the foreign accrual property income of the foreign affiliate in respect of the other taxpayer for those taxation years of the foreign affiliate,

(I)  subparagraph (a)(i) of the definition "exempt interest" in subsection 94.1(1) applied only where

1.  the foreign affiliate is a controlled foreign affiliate of the other taxpayer at the end of the foreign affiliate's taxation years that end in the particular taxation year of the other taxpayer, and

2.  the particular non-resident entity is a controlled foreign affiliate of the partnership at the end of the particular non-resident entity's taxation years that end in the foreign affiliate's taxation years that end in the other taxpayer's particular taxation year, and

(II)  where the participating interest is, throughout the period, in the particular taxation year, during which the participating interest was the partnership's property, property used or held by the partnership principally for the purpose of gaining or producing income from a business that is not an investment business (in this subclause, within the meaning assigned by section 95), the participating interest were an exempt interest (in this subclause, as defined by subsection 94.1(1)) of the partnership,

(C)  as if the definition "fresh-start year" in subsection 94.3(1) did not apply and a reference in section 94.3 to a fresh-start year, of the particular non-resident entity in respect of the partnership, were a reference to a taxation year of the particular non-resident entity

(I)  that ends in a taxation year of the partnership that begins after 2006,

(II)  that begins immediately after a preceding taxation year of the particular non-resident entity, at the end of which the particular non-resident entity was not a foreign investment entity or at the end of which the partnership property did not include a participating interest in the particular non-resident entity (other than an exempt interest, in this subparagraph as defined in subsection 94.1(1) as modified by this subparagraph), and

(III)  at the end of which the particular non-resident entity is a foreign investment entity in which the partnership owns a participating interest that is not an exempt interest,

(D)  as if the expression "in the return of income for which the taxpayer elects" in
paragraph 94.1(2)(h) were replaced by the expression "in respect of which a member of the taxpayer elects",

(E)  as if subparagraph 94.1(2)(h)(ii) were replaced by the following:

(ii)  the non-resident entity is

(A)  where the taxpayer is a partnership and an election under this paragraph is being made for the purpose of computing the income from the partnership of a member of the partnership that is a taxpayer resident in Canada, a foreign affiliate of the partnership and of the member in respect of which the partnership and the member has a qualifying interest (within the meaning assigned by paragraph 95(2)(m)) at the end of the non-resident entity's taxation years referred to in clause 96(1)(d)(iii)(A), or

(B)  where the taxpayer is a partnership and an election under this paragraph is being made for the purpose of computing the income from the partnership of a member of the partnership that is a foreign affiliate of another taxpayer resident in Canada, a foreign affiliate of the partnership and of the other taxpayer resident in Canada in respect of which the partnership and the other taxpayer has a qualifying interest (within the meaning assigned by paragraph 95(2)(m)) at the end of the non-resident entity's taxation years referred to in clause 96(1)(d)(iii)(B),

(F)  as if subparagraph 94.1(2)(h)(iii) were replaced by the following:

(iii)  an entity that was at any time a member of the taxpayer has not made in respect of the taxpayer any other election under this paragraph in respect of the non-resident entity;

(G)  as if an election for a particular taxation year of the partnership made under paragraph (a) of the definition "carrying value" or paragraph (a) of the definition "financial statements" in subsection 94.1(1), paragraph 94.1(2)(e), (h) or (j), subparagraph (a)(iii) of the description of D in the definition "mark-to-market formula" in subsection 94.2(1), subparagraph 94.2(2)(b)(i) or 94.2(3)(b)(iii), or paragraph 94.3(3)(b), were required to be filed under that provision in respect of the partnership by the taxpayer with the Minister on or before the taxpayer's filing-due date for the taxpayer's taxation year in which the particular taxation year ends,

(H)  as if the Minister were required, in sending a written demand under
subparagraph 94.1(2)(e)(iii), any of paragraphs 94.1(2)(i), (p) to (r) or (w) or 94.2(2)(d), or subparagraph 94.3(2)(b)(iii), to send the demand to the taxpayer,

(I)  as if any form, information or notification, in respect of a participating interest, in a non-resident entity, that is partnership property in the particular taxation year, that is required under any of sections 94.1 to 94.4 to be filed or included with a return of income were required to be filed or included with the taxpayer's return of income for the taxpayer's taxation year in which the particular taxation year ends, and

(J)  as if designations and notifications made, and information provided, by the taxpayer in the form referred to in clause (I) were made or provided by the partnership;

(2)  Section 96 of the Act is amended by adding the following after subsection (1.8):

Application of sections 94.1 to 94.4

(1.9)  If an exempt taxpayer (as defined in subsection 94.1(1)) for a taxation year is a member of a partnership at any time in the year, in applying paragraphs (1)(f) and (g) and 53(1)(e) and (2)(c) to the taxpayer for a fiscal period of the partnership that ends in the year this Act is to be read without reference to sections 94.1 to 94.4.

(3)  The portion of subsection 96(3) of the Act before paragraph (a) is replaced by the following:

Agreement or election of partnership members

(3)  If a taxpayer who was a member of a partnership at any time in a fiscal period has, for any purpose relevant to the computation of the taxpayer's income from the partnership for the fiscal period, made or executed an agreement, designation or election under or in respect of the application of any of subsections 13(4), (4.2) and (16) and 14(1.01) and (6), section 15.2, subsections 20(9) and 21(1) to (4), section 22, subsection 29(1), section 34, clause 37(8)(a)(ii)(B), subsections 44(1) and (6), 50(1) and 80(5) and (9) to (11), section 80.04, subsection 86.1(2), sections 94.1 to 94.3, paragraph 95(2)(g.3) and subsections 97(2), 139.1(16) and (17) and 249.1(4) and (6) that, if this Act were read without reference to this subsection, would be a valid agreement, designation or election,

(4)  Subsection 96(9) of the Act is replaced by the following:

Application of foreign partnership rule

(9)  For the purposes of applying subsection (8) and this subsection,

(a)  where 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 (8), the member is deemed not to be resident in Canada; and

(b)  where at any time a particular partnership is a member of another partnership,

(i)  each person or partnership that is, at that time, a member of the particular partnership is deemed to be a member of the other partnership at that time,

(ii)  each person or partnership that becomes a member of the particular partnership at that time is deemed to become a member of the other partnership at that time, and

(iii)  each person or partnership that ceases to be a member of the particular partnership at that time is deemed to cease to be a member of the other partnership at that time.

(5)  Subsections (1) and (2) apply to fiscal periods that begin after 2006.

(6)  Subsection (3) applies to taxation years that end after February 27, 2000. However, subsection 96(3) of the Act, as enacted by subsection (3), is

(a)  before December 21, 2002, to be read without reference to ", (4.2)"; and

(b)  before 2007, to be read without reference to "sections 94.1 to 94.3,
paragraph 95(2)(g.3)".

(7)  Subsection (4) applies to fiscal periods that begin after June 22, 2000.

21.  (1)  The portion of subsection 97(2) of the Act before paragraph (a) is replaced by the following:

Rules where election by partners

(2)  Notwithstanding any other provision of this Act other than subsection 13(21.2), where a taxpayer at any time in a taxation year disposes of any property (other than a specified participating interest) that is a capital property, Canadian resource property, foreign resource property, eligible capital property or inventory of the taxpayer to a partnership that immediately after that time is a Canadian partnership of which the taxpayer is a member, if the taxpayer and all the other members of the partnership jointly so elect in prescribed form within the time referred to in subsection 96(4),

(2)  Subsection (1) applies to dispositions that occur in taxation years that begin after 2006.

22.  (1)  Section 98 of the Act is amended by adding the following after subsection (6):

Where a partnership property is a specified participating interest

(7)  If at a particular time a partnership ceases to exist, the partnership is, at the time (in this subsection referred to as the "disposition time") that is immediately before the time that is immediately before the time that is immediately before the particular time, deemed

(a)  to have disposed of each of its properties that is at the disposition time a specified participating interest for proceeds of disposition equal to the property's fair market value at the disposition time; and

(b)  to have acquired the property immediately after the disposition time at a cost equal to that fair market value.

(2)  Subsection (1) applies to fiscal periods that begin after 2006.

23.  (1)  Subparagraph 104(4)(a)(i.1) of the Act is replaced by the following:

(i.1)  is a trust that was created by the will of a taxpayer who died after 1971 to which property was transferred in circumstances to which paragraph 70(5.2)(b) or (d) (as those paragraphs read in their application to taxation years that began before 2007), (5.2)(c) or (6)(d) applied and that, immediately after any such property vested indefeasibly in the trust as a consequence of the death of the taxpayer, was a trust,

(2)  Subsection 104(4) of the Act is amended by adding the following after paragraph (a.4):

(a.5)  where the trust is deemed by subsection 94(3) to be resident in Canada for a taxation year for the purpose of computing the trust's income for the taxation year, the day (in that taxation year) on which, because a contributor (in this paragraph, as defined by subsection 94(1)) either ceases to be resident in Canada or ceases to be a contributor to the trust because of the application at any time of paragraph 94(2)(t), there is no resident contributor (in this paragraph, as defined by subsection 94(1)) to the trust (or the only resident contributors to the trust are entities (in this paragraph, as defined by subsection 94(1)) each of which is an entity the maximum amount recoverable from which under the provisions referred to in paragraph 94(3)(d) is limited to the entities' recovery limits determined under subsection 94(8)), unless subsection 94(5) applies in respect of the contributor ceasing on the day to be a resident contributor to the trust;

(3)  Paragraph 104(4)(c) of the Act is replaced by the following:

(c)  the day that is 21 years after any day (other than a day determined under any of paragraphs (a) to (a.5)) that is, because of this subsection, a day on which the trust is deemed to have disposed of each such property.

(4)  Section 104 of the Act is amended by adding the following after subsection (4):

Mark-to-market property

(4.1)  In determining whether property is capital property for the purpose of subsection (4), this Act is to be read without reference to subparagraph 39(1)(a)(ii.3).

(5)  The portion of subsection 104(6) of the Act before paragraph (a) is replaced by the following:

Deduction in computing income of trust

(6)  Subject to subsections (7) to (7.1), for the purposes of this Part, there may be deducted in computing the income of a trust for a taxation year

(6)  Section 104 of the Act is amended by adding the following after subsection (7):

Trusts deemed to be resident in Canada

(7.01)  If a trust is deemed by subsection 94(3) to be resident in Canada for a taxation year for the purpose of computing the trust's income for the year, the maximum amount deductible under subsection (6) in computing its income for the year is the amount, if any, by which

(a)  the maximum amount that, if this Act were read without reference to this subsection, would be deductible under subsection (6) in computing its income for the year,

exceeds

(b)  the total of

(i)  the portion of the trust's designated income for the year (within the meaning assigned by section 210) that became payable in the year to a non-resident beneficiary under the trust in respect of an interest of the non-resident as a beneficiary under the trust, and

(ii)  all amounts each of which is determined by the formula

A × B

where

A is an amount (other than an amount described in subparagraph (i)) that

(A)  is paid or credited (having the meaning assigned by Part XIII) in the year to the trust,

(B)  would, if this Act were read without reference to subparagraph 94(3)(a)(viii), paragraph 212(2)(b) and sections 216 and 217, be an amount as a consequence of the payment or crediting of which the trust would have been liable to tax under Part XIII, and

(C)  becomes payable in the year by the trust to a non-resident beneficiary under the trust in respect of an interest of the non-resident as a beneficiary under the trust, and

B is

(A)  0.35, if the trust can establish to the satisfaction of the Minister that the non-resident beneficiary to whom the amount described in the description of A is payable is resident in a country with which Canada has a tax treaty under which the income tax that Canada may impose on the beneficiary in respect of the amount is limited, and

(B)  0.6, in any other case.

(7)  Paragraph 104(21.3)(a) of the Act is replaced by the following:

(a)  the total of all amounts each of which is an allowable capital loss (other than an allowable business investment loss) of the trust for the year from the disposition of a capital property, and

(8)  Subsection 104(24) of the Act is replaced by the following:

Amount payable

(24)  For the purposes of subparagraph 53(2)(h)(i.1), paragraph (c) of the definition "specified charity" in subsection 94(1), subsection 94(8) and subsections (6), (7), (7.01), (13) and (20), an amount is deemed not to have become payable to a beneficiary in a taxation year unless it was paid in the year to the beneficiary or the beneficiary was entitled in the year to enforce payment of it.

(9)  Subsections (1) to (6) and (8) apply to trust taxation years that begin after 2006. Subsections (2), (3), (5), (6) and (8) also apply to trust taxation years that begin

(a)  after 2000, if the trust makes a valid election under paragraph 17(2)(a) of this Act;

(b)  after 2001, if the trust makes a valid election under paragraph 17(2)(a) or (b) of this Act;

(c)  after 2002, if the trust makes a valid election under any of paragraphs 17(2)(a) to (c) of this Act;

(d)  after 2003, if the trust makes a valid election under any of paragraphs 17(2)(a) to (d) of this Act;

(e)  after 2004, if the trust makes a valid election under any of paragraphs 17(2)(a) to (e) of this Act; and

(f)  after 2005, if the trust makes a valid election under any of paragraphs 17(2)(a) to (f) of this Act.

(10)  Subsection (7) applies to trust taxation years that begin after 2000.

24.  (1)  Paragraph 107(1.1)(b) of the Act is amended by striking out the word "or" at the end of subparagraph (i), by adding the word "or" at the end of subparagraph (ii) and by adding the following after subparagraph (ii):

(iii)  at a time in a taxation year at which that cost is relevant, the interest is a participating interest in respect of which subsection 94.1(3) or 94.2(9) applies to the taxpayer for that taxation year.

(2)  Section 107 of the Act is amended by adding the following after subsection (4):

Specified participating interest

(4.01)  Subsection (2.1) applies (and subsection (2) does not apply) at any time to a distribution to a beneficiary by a trust of a property that is at that time a specified participating interest.

(3)  Subsection (1) applies to taxation years that begin after 2006.

(4)  Subsection (2) applies to distributions that occur in taxation years that begin after 2006.

25.  (1)  Subsection 107.4(1) of the Act is amended by striking out the word "and" at the end of paragraph (i), by adding the word "and" at the end of paragraph (j) and by adding the following after paragraph (j):

(k)  the property is not, immediately before the disposition, a specified participating interest.

(2)  Subsection (1) applies to dispositions that occur in taxation years that begin after 2006.

26.  (1)  The definition "income interest" in subsection 108(1) of the Act is replaced by the following:

"income interest"
« participation au revenu »

"income interest", of a taxpayer in a trust, means a right (whether immediate or future and whether absolute or contingent) of the taxpayer as a beneficiary under a personal trust to, or to receive, all or any part of the income of the trust and, at any timeafter 1999

(a)  subject to paragraph (b), includes a right (other than a right acquired before 2000 and disposed of before March 2000) to enforce payment of an amount by the trust that arises as a consequence of any such right; and

(b)  does not include a participating interest in respect of which subsection 94.1(3) or 94.2(9) applies to the taxpayer for the taxpayer's taxation year that includes that time;

(2)  The portion of the definition "cost amount" in subsection 108(1) before paragraph (a) is replaced by the following:

"cost amount"
« coût indiqué »

"cost amount" to a taxpayer at any time of a capital interest or part of it, as the case may be, in a trust, means (notwithstanding subsection 248(1) and except for the purposes of section 107.4 and, if that time is in a taxation year of the trust that began before 2007, except in respect of a capital interest in a trust that is at that time a foreign affiliate of the taxpayer),

(3)  Paragraph (a.1) of the definition "trust" in subsection 108(1) of the Act is replaced by the following:

(a.1)  a trust (other than a trust described in paragraph (a) or (d), a trust to which subsection 7(2) or (6) applies or a trust prescribed for the purpose of subsection 107(2)) all or substantially all of the property of which is held for the purpose of providing benefits to individuals each of whom is provided with benefits in respect of, or because of, an office or employment or former office or employment of any individual,

(4)  The portion of subsection 108(3) of the Act before paragraph (a) is replaced by the following:

Income of a trust in certain provisions

(3)  For the purposes of the definitions "income interest" in subsection (1), "lifetime benefit trust"in subsection 60.011(1) and "exempt foreign trust" in subsection 94(1), the income of a trust is its income computed without reference to the provisions of this Act and, for the purposes of the definition "pre-1972 spousal trust" in subsection (1) and paragraphs 70(6)(b) and (6.1)(b), 73(1.01)(c) and 104(4)(a), the income of a trust is its income computed without reference to the provisions of this Act, minus any dividends included in that income

(5)  The portion of subsection 108(7) of the Act before paragraph (a) is replaced by the following:

Interests acquired for consideration

(7)  For the purposes of paragraph 53(2)(h), paragraph (b) of the definition "exempt amount" in subsection 94(1), subsection 107(1), paragraph (j) of the definition "excluded right or interest" in subsection 128.1(10) and paragraph (b) of the definition "personal trust" in subsection 248(1),

(6)  Subsections (1) to (3) apply to trust taxation years that begin after 2006. Subsection (3) also applies to trust taxation years that begin

(a)  after 2000, if the trust makes a valid election under paragraph 17(2)(a) of this Act;

(b)  after 2001, if the trust makes a valid election under paragraph 17(2)(a) or (b) of this Act;

(c)  after 2002, if the trust makes a valid election under any of paragraphs 17(2)(a) to (c) of this Act;

(d)  after 2003, if the trust makes a valid election under any of paragraphs 17(2)(a) to (d) of this Act;

(e)  after 2004, if the trust makes a valid election under any of paragraphs 17(2)(a) to (e) of this Act; and

(f)  after 2005, if the trust makes a valid election under any of paragraphs 17(2)(a) to (f) of this Act.

(7)  Subsection (4) applies to trust taxation years that begin after 2000.

(8)  Subsection (5) applies in determining after 2006 whether an interest in a trust has been acquired for consideration.

27.  (1)  Clause 113(1)(b)(i)(A) of the Act is replaced by the following:

(A)  the corporation's relevant tax factor for the year

(2)  Clause 113(1)(c)(i)(B) of the Act is replaced by the following:

(B)  the corporation's relevant tax factor for the year, and

(3)  Subsections (1) and (2) apply after 2000.

28.  (1)  The portion of section 114 of the Act before paragraph (a) is replaced by the following:

Individual resident in Canada for only part of year

114.  Notwithstanding subsection 2(2) and subject to subsection 94.2(5), the taxable income for a taxation year of an individual who is resident in Canada throughout part of the year and non-resident throughout another part of the year is the amount, if any, by which

(2)  Subsection (1) applies to taxation years that begin after 2006.

29.  (1)  Subparagraph 115(1)(a)(vii) of the Act is replaced by the following:

(vii)  in the case of an authorized foreign bank,

(A)  the amount claimed by the bank to the extent that the inclusion of the amount in income

(I)  increases any amount deductible by the bank under subsection 126(1) for the year, and

(II)  does not increase an amount deductible by the bank under section 127 for the year, and

(B)  all amounts required by paragraph 12(1)(k) to be included in computing the bank's income, except to the extent that

(I)  subparagraph (ii) or clause (A) applies to those amounts, or

(II)  those amounts are in respect of a business of the bank that is not its Canadian banking business,

(2)  Subsection (1) applies to taxation years that begin after July 18, 2005.

30.  (1)  The portion of subsection 122(2) of the Act before paragraph (a) is replaced by the following:

Where subsection (1) does not apply

(2)  Subsection (1) does not apply for a taxation year of an inter vivos trust that is not a mutual fund trust and that

(2)  Subsection 122(2) of the Act is amended by adding the following after paragraph (d):

(d.1)  was not a trust to which a contribution (as defined by section 94 as it reads for trust taxation years that begin in 2007) was made after June 22, 2000;

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

31.  (1)  Paragraph 126(1)(a) of the Act is replaced by the following:

(a)  the part of any non-business income tax paid by the taxpayer for the year to the government of a country other than Canada that the taxpayer claims,

(2)  Section 126 of the Act is amended by adding the following after subsection (1.1):

Exception

(1.2)  Subsection (1) does not apply to non-business income tax paid by

(a)  a taxpayer, in respect of a particular amount that is included in computing, in respect of the taxpayer, the amount determined under subparagraph 94.4(2)(a)(i) in respect of a participating interest of the taxpayer, if the taxpayer made a deduction under subsection 94.4(3) in respect of the particular amount; and

(b)  a corporation in respect of income from a share of the capital stock of a foreign affiliate of the corporation.

(3)  Subsections (1) and (2) apply to taxation years that begin after 2006.

32.  (1)  Section 128.1 of the Act is amended by adding the following after subsection (1):

Trusts subject to subsection 94(3)

(1.1)  Paragraph (1)(b) does not apply, at a time in a particular taxation year of a trust, to the trust if the trust is resident in Canada for the particular taxation year for the purpose of computing its income.

(2)  Subsection (1) applies to trust taxation years that begin after 2006. Subsection (1) also applies to trust taxation years that begin

(a)  after 2000, if the trust makes a valid election under paragraph 17(2)(a) of this Act;

(b)  after 2001, if the trust makes a valid election under paragraph 17(2)(a) or (b) of this Act;

(c)  after 2002, if the trust makes a valid election under any of paragraphs 17(2)(a) to (c) of this Act;

(d)  after 2003, if the trust makes a valid election under any of paragraphs 17(2)(a) to (d) of this Act;

(e)  after 2004, if the trust makes a valid election under any of paragraphs 17(2)(a) to (e) of this Act; and

(f)  after 2005, if the trust makes a valid election under any of paragraphs 17(2)(a) to (f) of this Act.

33.  (1)  Paragraph 149(10)(c) of the Act is replaced by the following:

(c)  for the purposes of applying sections 37, 65 to 66.4, 66.7, 94.1 to 94.4, 111 and 126, subsections 127(5) to (35) and section 127.3 to the corporation, the corporation is deemed to be a new corporation the first taxation year of which began at that time; and

(2)  Subsection (1) applies to each corporation that, after 2006, becomes or ceases to be exempt from tax on its taxable income under Part I of the Act.

34.  (1)  Subparagraph 152(4)(b)(vi) of the Act is replaced by the following:

(vi)  is made in order to give effect to the application of subsection 94(9) or (10) or 118.1(15) or (16).

(2)  Subsection (1) applies after 2006.

35.  (1)  Section 160 of the Act is amended by adding the following after subsection (2):

Assessment

(2.1)  The Minister may at any time assess a taxpayer in respect of any amount payable because of paragraph 94(3)(d) or (e) and the provisions of this Division (including, for greater certainty, the provisions in respect of interest payable) apply, with any modifications that the circumstances require, in respect of an assessment made under this section as though it had been made under section 152 in respect of taxes payable under this Part.

(2)  The portion of subsection 160(3) of the Act before paragraph (a) is replaced by the following:

Discharge of liability

(3)  Where a particular taxpayer has become jointly and severally, or solidarily, liable with another taxpayer under this section or because of paragraph 94(3)(d) or (e) in respect of part or all of a liability under this Act of the other taxpayer,

(3)  Subsections (1) and (2) apply to assessments made after 2006.

36.  (1)  Paragraph (c) of the description of A in subsection 162(10.1) of the French version of the Act is replaced by the following:

c)  si la déclaration est à produire en application de l'article 233.2 à l'égard d'une fiducie, 5 % du total des montants représentant chacun la juste valeur marchande, au moment où il a été fait, d'un apport que la personne ou la société de personnes a fait à la fiducie avant la fin de la dernière année d'imposition de celle-ci pour laquelle la déclaration doit être produite,

(2)  Paragraph (d) of the description of A in subsection 162(10.1) of the English version of the Act is replaced by the following:

(d)  where the return is required to be filed under section 233.2 in respect of a trust, 5% of the total of all amounts each of which is the fair market value, at the time it was made, of a contribution of the person or partnership made to the trust before the end of the last taxation year of the trust in respect of which the return is required,

(3)  Section 162 of the Act is amended by adding the following after subsection (10.1):

Application to trust contributions

(10.11)  In paragraph (d) of the description of A in subsection (10.1), subsections 94(1), (2) and (9) apply, except that the references to the expression "(other than a restricted property)" in the definition "arm's length transfer" in subsection 94(1) are to be read as references to the expression "(other than property that is not described in any of subclauses (b)(i)(A)(I) to (III) but to which paragraph 94(2)(g) applies)".

(4)  The portion of subsection 162(10.3) of the Act before paragraph (a) is replaced by the following:

Application to partnerships

(10.3)  For the purposes of paragraph (f) of the description of A in subsection (10.1) and subsection (10.2), in determining whether a non-resident corporation is a foreign affiliate or a controlled foreign affiliate of a partnership,

(5)  Subsection 162(10.4) of the Act is repealed.

(6)  Subsections (1) to (5) apply to returns in respect of taxation years that begin after 2006. Subsections (1) to (5) also apply to returns in respect of taxation years that begin

(a)  after 2000, if the return relates to a trust that makes a valid election under paragraph 17(2)(a) of this Act;

(b)  after 2001, if the return relates to a trust that makes a valid election under paragraph 17(2)(a) or (b) of this Act;

(c)  after 2002, if the return relates to a trust that makes a valid election under any of paragraphs 17(2)(a) to (c) of this Act;

(d)  after 2003, if the return relates to a trust that makes a valid election under any of paragraphs 17(2)(a) to (d) of this Act;

(e)  after 2004, if the return relates to a trust that makes a valid election under any of paragraphs 17(2)(a) to (e) of this Act; and

(f)  after 2005, if the return relates to a trust that makes a valid election under any of paragraphs 17(2)(a) to (f) of this Act.

37.  (1)  Paragraph 163(2.4)(b) of the Act is replaced by the following:

(b)  where the return is required to be filed under section 233.2 in respect of a trust, the greater of

(i)  $24,000, and (ii) 5% of the total of all amounts each of which is the fair market value, at the time it was made, of a contribution of the person or partnership made to the trust before the end of the last taxation year of the trust in respect of which the return is required; (2) Section 163 of the Act is amended by adding the following after subsection (2.4): Application to trust contributions (2.41) In subparagraph (2.4)(b)(ii), subsections 94(1), (2) and (9) apply, except that the references to the expression "(other than a restricted property)" in the definition "arm's length transfer" in subsection 94(1) are to be read as references to the expression "(other than property that is not described in any of subclauses (b)(i)(A)(I) to (III) but to which paragraph 94(2)(g) applies)". (3) The portion of subsection 163(2.6) of the Act before paragraph (a) is replaced by the following: Application to partnerships (2.6) For the purposes of paragraph (2.4)(d) and subsection (2.5), in determining whether a non-resident corporation is a foreign affiliate or a controlled foreign affiliate of a partnership, (4) Subsection 163(2.91) of the Act is repealed. (5) Subsections (1) to (4) apply to returns in respect of taxation years that begin after 2006. Subsections (1) to (4) also apply to returns in respect of taxation years that begin (a) after 2000, if the return relates to a trust that makes a valid election under paragraph 17(2)(a) of this Act; (b) after 2001, if the return relates to a trust that makes a valid election under paragraph 17(2)(a) or (b) of this Act; (c) after 2002, if the return relates to a trust that makes a valid election under any of paragraphs 17(2)(a) to (c) of this Act; (d) after 2003, if the return relates to a trust that makes a valid election under any of paragraphs 17(2)(a) to (d) of this Act; (e) after 2004, if the return relates to a trust that makes a valid election under any of paragraphs 17(2)(a) to (e) of this Act; and (f) after 2005, if the return relates to a trust that makes a valid election under any of paragraphs 17(2)(a) to (f) of this Act. 38. (1) Subsection 215(1) of the Act is replaced by the following: Withholding and remittance of tax 215. (1) When a person pays, credits or provides, or is deemed to have paid, credited or provided, an amount on which an income tax is payable under this Part, or would be so payable if this Act were read without reference to subparagraph 94(3)(a)(viii) and to subsection 216.1(1), the person shall, notwithstanding any agreement or law to the contrary, deduct or withhold from it the amount of the tax and forthwith remit that amount to the Receiver General on behalf of the non-resident person on account of the tax and shall submit with the remittance a statement in prescribed form. (2) Subsection (1) applies to trust taxation years that begin after 2006. It also applies to trust taxation years that begin (a) after 2000, if the trust makes a valid election under paragraph 17(2)(a) of this Act; (b) after 2001, if the trust makes a valid election under paragraph 17(2)(a) or (b) of this Act; (c) after 2002, if the trust makes a valid election under any of paragraphs 17(2)(a) to (c) of this Act; (d) after 2003, if the trust makes a valid election under any of paragraphs 17(2)(a) to (d) of this Act; (e) after 2004, if the trust makes a valid election under any of paragraphs 17(2)(a) to (e) of this Act; and (f) after 2005, if the trust makes a valid election under any of paragraphs 17(2)(a) to (f) of this Act. 39. (1) Section 216 of the Act is amended by adding the following after subsection (4): Optional method of payment (4.1) If a trust is deemed by subsection 94(3) to be resident in Canada for a taxation year for the purpose of computing the trust's income for the year, a person who is otherwise required by subsection 215(3) to remit in the year, in respect of the trust, an amount to the Receiver General in payment of tax on rent on real or immovable property or on a timber royalty may elect in prescribed form filed with the Minister under this subsection not to remit under subsection 215(3) in respect of amounts received after the election is made, and if that election is made, the elector shall, (a) when any amount is available out of the rent or royalty received for remittance to the trust, deduct 25% of the amount available and remit the amount deducted to the Receiver General on behalf of the trust on account of the trust's tax under Part I; and (b) if the trust does not file a return for the year as required by section 150, or does not pay the tax that the trust is liable to pay under Part I for the year within the time required by that Part, on the expiration of the time for filing or payment, as the case may be, pay to the Receiver General, on account of the trust's tax under Part I, the amount by which the full amount that the elector would otherwise have been required to remit in the year in respect of the rent or royalty exceeds the amounts that the elector has remitted in the year under paragraph (a) in respect of the rent or royalty. (2) Subsection (1) applies to trust taxation years that begin after 2006, except that an election referred to in subsection 216(4.1) of the Act, as enacted by subsection (1), 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 on or before the trust's filing-due date for the taxation year of the trust that includes the day on which this Act is assented to. 40. (1) The definitions "specified beneficiary" and "specified foreign trust" in subsection 233.2(1) of the Act are repealed. (2) Subsections 233.2(2) and (3) of the Act are replaced by the following: Rule of application (2) In this section and paragraph 233.5(c.1), subsections 94(1), (2) and (10) to (13) apply, except that the references to the expression "(other than a restricted property)" in the definition "arm's length transfer" in subsection 94(1) are to be read as references to the expression "(other than property that is not described in any of subclauses (b)(i)(A)(I) to (III) but to which paragraph 94(2)(g) applies)". (3) Subsection 233.2(4) of the Act is replaced by the following: Filing information on foreign trusts (4) A person shall file an information return in prescribed form, in respect of a taxation year of a particular trust (other than an exempt trust or a trust described in any of paragraphs (c) to (h) of the definition "exempt foreign trust" in subsection 94(1)), with the Minister on or before the person's filing-due date for the person's taxation year in which the particular trust's taxation year ends if (a) the particular trust is non-resident at a specified time in that taxation year of the particular trust; (b) the person is a contributor, a connected contributor or a resident contributor to the particular trust; and (c) the person (i) is resident in Canada at that specified time, and (ii) is not, at that specified time, (A) a mutual fund corporation, (B) a non-resident-owned investment corporation, (C) a person all of whose taxable income for the person's taxation year that includes that time is exempt from tax under Part I, (D) a mutual fund trust, (E) a trust described in any of paragraphs (a) to (e.1) of the definition "trust" in subsection 108(1), (F) a registered investment, (G) a trust in which all persons beneficially interested are persons described in clauses (A) to (F), or (H) a person who is a contributor to the particular trust by reason only of being a contributor to a trust described in any of clauses (C) to (G). Similar arrangements (4.1) In this section and sections 162, 163 and 233.5, a person's obligations under subsection (4) (except to the extent that they are waived in writing by the Minister) are to be determined as if a transfer or loan were a contribution to which paragraph (4)(b) applied, an arrangement or entity were a non-resident trust throughout the calendar year that includes the time referred to in paragraph (a) and that calendar year were a taxation year of the arrangement or entity, if (a) the person at any time, directly or indirectly, transferred or loaned the property to be held (i) under the arrangement and the arrangement is governed by laws that are not laws of Canada or a province, or (ii) by the entity and the entity is a non-resident entity (as defined by subsection 94.1(1)); (b) the transfer or loan is not an arm's length transfer; (c) the transfer or loan is not solely in exchange for property that would be described in paragraphs (a) to (i) of the definition "specified foreign property" in subsection 233.3(1) if that definition were read without reference to paragraphs (j) to (q); (d) the arrangement or entity is not a trust in respect of which the person would, if this Act were read without reference to this subsection, be required to file an information return for a taxation year that includes that time; and (e) the arrangement or entity is, for a taxation year or fiscal period of the arrangement or entity that includes that time, not (i) an exempt foreign trust, (ii) a foreign affiliate in respect of which the person is a reporting entity (within the meaning assigned by subsection 233.4(1)), or (iii) an exempt trust. (4) Subsections (1) to (3) apply to returns in respect of trust taxation years that begin after 2006. Subsections (1) to (3) also apply to returns in respect of trust taxation years that begin (a) after 2000, if the return relates to a trust that makes a valid election under paragraph 17(2)(a) of this Act; (b) after 2001, if the return relates to a trust that makes a valid election under paragraph 17(2)(a) or (b) of this Act; (c) after 2002, if the return relates to a trust that makes a valid election under any of paragraphs 17(2)(a) to (c) of this Act; (d) after 2003, if the return relates to a trust that makes a valid election under any of paragraphs 17(2)(a) to (d) of this Act; (e) after 2004, if the return relates to a trust that makes a valid election under any of paragraphs 17(2)(a) to (e) of this Act; and (f) after 2005, if the return relates to a trust that makes a valid election under any of paragraphs 17(2)(a) to (f) of this Act. However, for returns in respect of trust taxation years that end on or before July 18, 2005, paragraphs 233.2(4)(a) and (b) of the Act, as enacted by subsection (3), are to be read as follows: (a) the particular trust is non-resident at the end of that taxation year of the particular trust; (b) a contribution has been made by the person to the particular trust at any time in that taxation year of the particular trust or in a preceding taxation year of the particular trust; and (5) A return required to be filed by a person because of subsection 233.2(4) of the Act, as enacted by subsection (3), 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 on or before the person's filing-due date for the person's taxation year that includes the day on which this Act is assented to. 41. (1) Subparagraph (a)(iv) of the definition "bien étranger déterminé" in subsection 233.3(1) of the French version of the Act is replaced by the following: (iv) la participation dans une fiducie non-résidente, (2) Paragraph (a) of the definition "bien étranger déterminé" in subsection 233.3(1) of the French version of the Act is amended by adding the following after subparagraph (iv): (iv.1) l'intérêt dans une police d'assurance qui est réputé, par le paragraphe 94.2(11), être une participation déterminée dans une entité non-résidente, (3) Subparagraph (b)(iii) of the definition "bien étranger déterminé" in subsection 233.3(1) of the French version of the Act is repealed. (4) Paragraph (d) of the definition "specified foreign property" in subsection 233.3(1) of the English version of the Act is replaced by the following: (d) an interest in a non-resident trust, (5) The definition "specified foreign property" in subsection 233.3(1) of the English version of the Act is amended by adding the following after paragraph (d): (d.1) an interest in an insurance policy that is deemed by subsection 94.2(11) to be a participating interest in a non-resident entity, (6) Paragraph (l) of the definition "specified foreign property" in subsection 233.3(1) of the English version of the Act is repealed. (7) Subsections (1), (3), (4) and (6) apply to returns in respect of trust taxation years that begin after 2006. Subsections (1), (3), (4) and (6) also apply to returns in respect of trust taxation years that begin (a) after 2000, if the return relates to a trust that makes a valid election under paragraph 17(2)(a) of this Act; (b) after 2001, if the return relates to a trust that makes a valid election under paragraph 17(2)(a) or (b) of this Act; (c) after 2002, if the return relates to a trust that makes a valid election under any of paragraphs 17(2)(a) to (c) of this Act; (d) after 2003, if the return relates to a trust that makes a valid election under any of paragraphs 17(2)(a) to (d) of this Act; (e) after 2004, if the return relates to a trust that makes a valid election under any of paragraphs 17(2)(a) to (e) of this Act; and (f) after 2005, if the return relates to a trust that makes a valid election under any of paragraphs 17(2)(a) to (f) of this Act. (8) Subsections (2) and (5) apply to returns for taxation years that begin after 2006. 42. (1) Subsection 233.4(1) of the Act is amended by adding the word "and" at the end of paragraph (a) and by repealing paragraph (b). (2) Subparagraph 233.4(1)(c)(ii) of the Act is replaced by the following: (ii) of which a non-resident corporation is a foreign affiliate at any time in the fiscal period. (3) The portion of subsection 233.4(2) of the Act before paragraph (a) is replaced by the following: Rules of application (2) For the purpose of this section, in determining whether a non-resident corporation is a foreign affiliate or a controlled foreign affiliate of a taxpayer resident in Canada or of a partnership (4) Subsections (1) to (3) apply to taxation years and fiscal periods that begin after 2006. Subsections (1) to (3) also apply to taxation years and fiscal periods that begin (a) after 2000, if the taxation year or fiscal period relates to a trust the taxation year of which begins in 2001, 2002, 2003, 2004, 2005 or 2006 and the trust makes a valid election under paragraph 17(2)(a) of this Act; (b) after 2001, if the taxation year or fiscal period relates to a trust the taxation year of which begins in 2002, 2003, 2004, 2005 or 2006 and the trust makes a valid election under paragraph 17(2)(a) or (b) of this Act; (c) after 2002, if the taxation year or fiscal period relates to a trust the taxation year of which begins in 2003, 2004, 2005 or 2006 and the trust makes a valid election under any of paragraphs 17(2)(a) to (c) of this Act; (d) after 2003, if the taxation year or fiscal period relates to a trust the taxation year of which begins in 2004, 2005 or 2006 and the trust makes a valid election under any of paragraphs 17(2)(a) to (d) of this Act; (e) after 2004, if the taxation year or fiscal period relates to a trust the taxation year of which begins in 2005 or 2006 and the trust makes a valid election under any of paragraphs 17(2)(a) to (e) of this Act; and (f) after 2005, if the taxation year or fiscal period relates to a trust the taxation year of which begins in 2006 and the trust makes a valid election under any of paragraphs 17(2)(a) to (f) of this Act. 43. (1) Paragraph 233.5(c) of the Act is replaced by the following: (c) if the return is required to be filed under section 233.2 in respect of a trust, at the time of each transaction, if any, entered into by the person or partnership after March 5, 1996 and before June 23, 2000 that gave rise to the requirement to file a return for a taxation year of the trust that began before 2007 or that affects the information to be reported in the return, it was reasonable to expect that sufficient information would be available to the person or partnership to comply with section 233.2 in respect of each taxation year of the trust that began before 2007; (c.1) if the return is required to be filed under section 233.2, at the time of each contribution (determined with reference to subsection 233.2(2)) made by the person or partnership after June 22, 2000 that gives rise to the requirement to file the return or that affects the information to be reported in the return, it was reasonable to expect that sufficient information would be available to the person or partnership to comply with section 233.2; (c.2) if the return is required to be filed under section 233.4 by a person or partnership in respect of a corporation that is a controlled foreign affiliate for the purpose of that section of the person or partnership, at the time of each transaction, if any, entered into by the person or partnership after March 5, 1996 that gives rise to the requirement to file the return or that affects the information to be reported in the return, it was reasonable to expect that sufficient information would be available to the person or partnership to comply with section 233.4; and (2) Subsection (1) applies to returns in respect of taxation years that begin after 2006. Subsection (1) also applies to returns in respect of taxation years that begin (a) in 2001, 2002, 2003, 2004, 2005 or 2006, if the return relates to a trust that makes a valid election under paragraph 17(2)(a) of this Act; (b) in 2002, 2003, 2004, 2005 or 2006, if the return relates to a trust that makes a valid election under paragraph 17(2)(a) or (b) of this Act; (c) in 2003, 2004, 2005 or 2006, if the return relates to a trust that makes a valid election under any of paragraphs 17(2)(a) to (c) of this Act; (d) in 2004, 2005 or 2006, if the return relates to a trust that makes a valid election under any of paragraphs 17(2)(a) to (d) of this Act; (e) in 2005 or 2006, if the return relates to a trust that makes a valid election under any of paragraphs 17(2)(a) to (e) of this Act; and (f) in 2006, if the return relates to a trust that makes a valid election under any of paragraphs 17(2)(a) to (f) of this Act. 44. (1) The definition "amount" in subsection 248(1) of the Act is amended by striking out the word "and" at the end of paragraph (b) and by adding the following after paragraph (b): (b.1) in the case of a stock dividend paid by a corporation that is, when the dividend is paid, a non-resident corporation, the "amount" of any stock dividend is, except where subsection 95(7) applies to the dividend, the greater of (i) the amount by which the paid-up capital of the corporation that paid the dividend is increased by reason of the payment of the dividend, and (ii) the fair market value of the share or shares paid as a stock dividend at the time of payment, and (2) The definition "controlled foreign affiliate" in subsection 248(1) of the Act is replaced by the following: "controlled foreign affiliate" « société étrangère affiliée contrôlée » "controlled foreign affiliate" has, except as expressly otherwise provided in this Act, the meaning assigned by subsection 95(1); (3) The definition "cost amount" in subsection 248(1) of the Act is amended by adding the following after paragraph (c.1): (c.2) where the cost at that time to the taxpayer of the property is determined under subsection 94.2(13), the cost so determined, (4) The definition "disposition" in subsection 248(1) of the Act is amended by adding the following after paragraph (b): (b.1) where the property is an interest in a life insurance policy, a disposition within the meaning of section 148, (5) The definition "inventory" in subsection 248(1) of the Act is replaced by the following: "inventory" « inventaire » "inventory" means a description of property of a taxpayer (other than a property in respect of which subsection 94.1(4) or 94.2(3) applies to the taxpayer for a taxation year) the cost or value of which is relevant in computing the taxpayer's income from a business for a taxation year or would have been so relevant if the income from the business had not been computed in accordance with the cash method and, with respect to a farming business, includes all of the livestock held in the course of carrying on the business; (6) The definition "share" in subsection 248(1) of the Act is replaced by the following: "share" « action » "share", except as the context otherwise requires, means a share or a fraction of a share of the capital stock of a corporation and, for greater certainty, a share of the capital stock of a corporation includes a share of the capital of a cooperative corporation (within the meaning assigned by subsection 136(2)), a share of the capital of an agricultural cooperative corporation (within the meaning assigned by subsection 135.1(1)) and a share of the capital of a credit union; (7) Subsection 248(1) of the Act is amended by adding the following in alphabetical order: "foreign accrual property income" « revenu étranger accumulé, tiré de biens » "foreign accrual property income" has the meaning assigned by section 95; "foreign investment entity" « entité de placement étrangère » "foreign investment entity" has the meaning assigned by section 94.1; "participating interest" « participation déterminée » "participating interest" has the meaning assigned by section 94.1; "specified participating interest" « participation déterminée désignée » "specified participating interest" means a property of a taxpayer that is (a) a participating interest of the taxpayer, other than an exempt interest (as defined by subsection 94.1(1)) of the taxpayer, in a foreign investment entity, or (b) a participating interest of the taxpayer in a tracking entity (in this paragraph, as defined by subsection 94.2(1)), other than (i) an exempt interest (as would be defined by subsection 94.1(1) if the definition "exempt interest" in that subsection were read without reference to subparagraphs (a)(i) and (ii) of that definition) of the taxpayer, in a tracking entity, or (ii) a participating interest in respect of which subsection 94.2(9) does not apply to the taxpayer solely because of paragraph 94.2(9)(e); (8) Subsection 248(3) of the Act is replaced by the following: Certain arrangements under civil law (3) For the purposes of this Act, (a) if at any time property is subject to a usufruct, right of use or habitation, or substitution, (i) the usufruct, right of use or habitation, or substitution, as the case may be, is deemed to be at that time (A) a trust, and (B) where the usufruct, right of use or habitation, or substitution, as the case may be, is created by will, a trust created by will, (ii) the property is deemed (A) where the usufruct, right of use or habitation, or substitution, as the case may be, arises on the death of a testator, to have been transferred to the trust on and as a consequence of the death of the testator, and not otherwise, and (B) where the usufruct, right of use or habitation, or substitution, as the case may be, arises otherwise, to have been transferred (at the time it first became subject to the usufruct, right of use or habitation, or substitution, as the case may be) to the trust by the person that granted the usufruct, right of use or habitation, or substitution, and (iii) the property is deemed to be, throughout the period in which it is subject to the usufruct, right of use or habitation, or substitution, as the case may be, held by the trust, and not otherwise; (b) an arrangement (other than a partnership, an arrangement described in paragraph (c) or an arrangement that is a trust determined without reference to this paragraph) is deemed to be a trust and property subject to rights and obligations under the arrangement is, if the arrangement is deemed by this paragraph to be a trust, deemed to be held in trust and not otherwise, where the arrangement (i) is established before October 31, 2003 by or under a written contract that (A) is governed by the laws of the Province of Quebec, and (B) provides that, for the purposes of this Act, the arrangement shall be considered to be a trust, and (ii) creates rights and obligations that are substantially similar to the rights and obligations under a trust (determined without reference to this subsection); (c) an arrangement (other than an arrangement that is a trust determined without reference to this paragraph) is deemed to be a trust and property subject to rights and obligations under the arrangement is, if the arrangement is deemed by this paragraph to be a trust, deemed to be held in trust and not otherwise, where the arrangement is (i) established before 2010, (ii) established by or under a written contract that is governed by the laws of the Province of Quebec, (iii) entered into between an individual and a corporation licensed or otherwise authorized under the laws of Canada or a province to carry on in Canada the business of offering to the public its services as trustee, and (iv) established under or pursuant to a specimen plan or fund that (A) is presented as a declaration of trust or provides that, for the purposes of this Act, the arrangement shall be considered to be a trust, and (B) is approved by the Canada Revenue Agency for the purpose of section 146 or 146.3 of the Act; (d) a person who has a right (whether immediate or future and whether absolute or contingent) to receive all or part of the income or capital in respect of property that is referred to in paragraph (a) or (b) is deemed to be beneficially interested in the trust; and (e) notwithstanding that a property is at any time subject to a servitude, the property is deemed to be beneficially owned by a person at that time if, at that time, the person has in relation to the property (i) the right of ownership, (ii) a right as a lessee under an emphyteusis, or (iii) a right as a beneficiary in a trust. (9) Subsection (1) applies to dividends declared on or after July 18, 2005. (10) Subsections (2) to (4) and (6) and (7) apply to taxation years that begin after 2006. (11) Subsection (5) applies to fiscal periods that begin after 2006. (12) Subsection (8) applies to taxation years that begin after October 30, 2003. (13) For taxation years that begin after 1988 and before October 31, 2003, paragraph 248(3)(d) of the Act shall, in its application to arrangements established under or pursuant to a specimen plan or fund approved by the Canada Revenue Agency for the purpose of section 146 or 146.3 of the Act and entered into between an individual and a corporation licensed or otherwise authorized under the laws of Canada or a province to carry on in Canada the business of offering to the public its services as trustee, be read without reference to (a) clause (i)(B) of that paragraph, if the specimen plan or fund is presented as a declaration of trust but does not provide that, for the purposes of the Act, the arrangement shall be considered to be a trust; and (b) subparagraph (ii) of that paragraph. 2001, c. 17 Income Tax Amendments Act, 2000 45. (1) Paragraph 53(2)(a) of the Income Tax Amendments Act, 2000 is replaced by the following: (a) in respect of transfers that occur after 1999 and before 2007, for the purpose of subsection 73(1) of the Act, as enacted by subsection (1), the residence of a transferee trust shall be determined without reference to section 94 of the Act, as it reads in its application to taxation years that began before 2007; (2) Subsection (1) is deemed to have come into force on June 14, 2001. 46. (1) Subsection 80(19) of the Act is replaced by the following: (19) Subsections (1) to (4) apply to the 2000 and subsequent taxation years except that, in respect of transfers after 1999 and before 2007, for the purposes of subsection 107(1) of the Act, as enacted by this section, the residence of a transferee trust shall be determined without reference to section 94 of the Act, as it read in its application to taxation years that began before 2007. (2) Subsection (1) is deemed to have come into force on June 14, 2001. PART 2 GENERAL AMENDMENTS TO THE INCOME TAX ACT AND OTHER ACTS AS A CONSEQUENCE R.S., c. 1 (5th Supp.) Income Tax Act 47. (1) Paragraph 4(3)(a) of the Income Tax Act is replaced by the following: (a) subject to paragraph (b), all deductions permitted in computing a taxpayer's income for a taxation year for the purposes of this Part, except any deduction permitted by any of paragraphs 60(b) to (o), (p), (r) and (v) to (x), apply either wholly or in part to a particular source or to sources in a particular place; and (2) Subsection (1) applies to the 2002 and subsequent taxation years. 48. (1) Section 6 of the Act is amended by adding the following after subsection (3): Amount receivable for covenant (3.1) If an amount (other than an amount to which paragraph (1)(a) applies because of subsection (11)) is receivable at the end of a taxation year by a taxpayer in respect of a covenant, agreed to by the taxpayer more than 36 months before the end of that taxation year, with reference to what the taxpayer is, or is not, to do, and the amount would be included in the taxpayer's income for the year under this subdivision if it were received by the taxpayer in the year, the amount (a) is deemed to be received by the taxpayer at the end of the taxation year for services rendered as an officer or during the period of employment; and (b) is deemed not to be received at any other time. (2) Subsection 6(15.1) of the French version of the Act is replaced by the following: Montant remis (15.1) Pour l'application du paragraphe (15), le « montant remis » à un moment donné sur une dette émise par un débiteur s'entend au sens qui serait donné à cette expression par le paragraphe 80(1) si, à la fois : a) la dette était une dette commerciale, au sens du paragraphe 80(1), émise par le débiteur; b) il n'était pas tenu compte d'un montant inclus dans le calcul du revenu en raison du règlement ou de l'extinction de la dette à ce moment; c) il n'était pas tenu compte des alinéas f) et h) de l'élément B de la formule figurant à la définition de « montant remis » au paragraphe 80(1); d) il n'était pas tenu compte des alinéas 80(2)b) et q). (3) Subsection (1) applies to amounts receivable in respect of a covenant agreed to after October 7, 2003. (4) Subsection (2) applies to taxation years that end after February 21, 1994. 49. (1) The portion of subsection 7(7) of the Act before the definition "qualifying person" is replaced by the following: Definitions (7) The following definitions apply in this section and in subsection 47(3), paragraphs 53(1)(j) and 110(1)(d) and (d.01) and subsections 110(1.5) to (1.8) and (2.1). (2) Subsection (1) applies after 1998. However, (a) it does not apply to a right under an agreement to which subsection 7(7) of the Act, as enacted by subsection 3(7) of the Income Tax Amendments Act, 1998, does not (except for the purpose of applying paragraph 7(3)(b) of the Act) apply; and (b) before 2000, the portion of subsection 7(7) of the Act, as enacted by subsection (1), before the definition "qualifying person" is to be read as follows: (7) The definitions in this subsection apply in this section and in paragraph 110(1)(d) and subsections 110(1.5) to (1.8). 50. (1) Paragraph 8(1)(b) of the Act is replaced by the following: Legal expenses of employee (b) amounts paid by the taxpayer in the year as or on account of legal expenses incurred by the taxpayer to collect, or to establish a right to, an amount owed to the taxpayer that, if received by the taxpayer, would be required by this subdivision to be included in computing the taxpayer's income; (2) The portion of paragraph 8(1)(i) of the Act before subparagraph (i) is replaced by the following: Dues and other expenses of performing duties (i) an amount paid by the taxpayer in the year, or on behalf of the taxpayer in the year if the amount paid on behalf of the taxpayer is required to be included in the taxpayer's income for the year, as (3) Subsection 8(1) of the Act is amended by adding the following after paragraph (l.1): Quebec parental insurance plan (l.2) an amount payable by the taxpayer in the year as an employer's premium under the Act respecting parental insurance, R.S.Q., c. A-29.011 in respect of salary, wages or other remuneration, including gratuities, paid to an individual employed by the taxpayer as an assistant or substitute to perform the duties of the taxpayer's office or employment if an amount is deductible by the taxpayer for the year under subparagraph (i)(ii) in respect of that individual; (4) Subsection (1) applies to amounts paid in the 2001 and subsequent taxation years. (5) Subsection (3) applies to the 2006 and subsequent taxation years. 51. (1) Paragraph 12(1)(x) of the Act is amended by adding the following after subparagraph (v): (v.1) is not an amount received by the taxpayer in respect of a restrictive covenant, as defined by subsection 56.4(1), that was included, under subsection 56.4(2), in computing the income of a person related to the taxpayer, (2) Subparagraph 12(1)(x)(vii) of the French version of the Act is replaced by the following: (vii) ne réduit pas, en application du paragraphe (2.2) ou 13(7.4) ou de l'alinéa 53(2)s), le coût ou coût en capital du bien ou le montant de la dépense, (3) Section 12 of the Act is amended by adding the following after subsection (2): No deferral of section 9 income under paragraph (1)(g) (2.01) Paragraph (1)(g) does not defer the inclusion in income of any amount that would, if this section were read without reference to that paragraph, be included in computing the taxpayer's income in accordance with section 9. (4) Subsection (1) applies after October 7, 2003. 52. (1) Subsection 13(1) of the Act is replaced by the following: Recaptured depreciation 13. (1) If, at the end of a taxation year, the total of the amounts determined for E to K in the definition "undepreciated capital cost" in subsection (21) in respect of a taxpayer's depreciable property of a particular prescribed class exceeds the total of the amounts determined for A to D.1 in that definition in respect of that property, the excess shall be included in computing the taxpayer's income of the year. (2) Subparagraph 13(4)(c)(ii) of the Act is replaced by the following: (ii) the amount that has been used by the taxpayer to acquire (A) if the former property is described in paragraph (a), before the later of the end of the second taxation year following the initial year and 24 months after the end of the initial year, or (B) in any other case, before the later of the end of the first taxation year following the initial year and 12 months after the end of the initial year, a replacement property of a prescribed class that has not been disposed of by the taxpayer before the time at which the taxpayer disposed of the former property, and (3) Section 13 of the Act is amended by adding the following after subsection (4.1): Election - limited period franchise, concession or license (4.2) Subsection (4.3) applies in circumstances where (a) a taxpayer (in this subsection and subsection (4.3) referred to as the "transferor") has, pursuant to a written agreement with a person or partnership (in this subsection and subsection (4.3) referred to as the "transferee"), at any time disposed of or terminated a former property that is a franchise, concession or licence for a limited period that is wholly attributable to the carrying on of a business at a fixed place; (b) the transferee acquired the former property from the transferor or, on the termination, acquired a similar property in respect of the same fixed place from another person or partnership; and (c) the transferor and the transferee jointly elect in their returns of income for their taxation years that include that time to have subsection (4.3) apply in respect of the acquisition and the disposition or termination. Effect of election (4.3) Where this subsection applies in respect of an acquisition and a disposition or termination, (a) if the transferee acquired a similar property referred to in paragraph (4.2)(b), the transferee is deemed to have also acquired the former property at the time that the former property was terminated and to own the former property until the transferee no longer owns the similar property; (b) if the transferee acquired the former property referred to in paragraph (4.2)(b), the transferee is deemed to own the former property until such time as the transferee owns neither the former property nor a similar property in respect of the same fixed place to which the former property related; (c) for the purpose of calculating the amount deductible under paragraph 20(1)(a) in respect of the former property in computing the transferee's income, the life of the former property remaining on its acquisition by the transferee is deemed to be equal to the period that was the life of the former property remaining on its acquisition by the transferor; and (d) any amount that would, if this Act were read without reference to this subsection, be an eligible capital amount to the transferor or an eligible capital expenditure to the transferee in respect of the disposition or termination of the former property by the transferor is deemed to be (i) neither an eligible capital amount nor an eligible capital expenditure, (ii) an amount required to be included in computing the capital cost to the transferee of the former property, and (iii) an amount required to be included in computing the proceeds of disposition to the transferor in respect of a disposition of the former property. (4) Subsection (1) applies to taxation years that end after February 23, 1998. (5) Subsection (2) applies in respect of dispositions that occur in taxation years that end on or after December 20, 2000, except that for those dispositions that occur in taxation years that end before December 20, 2001, clause 13(4)(c)(ii)(B) of the Act, as enacted by subsection (2), is to be read as follows: (B) in any other case, before the end of the first taxation year following the initial year, (6) Subsection (3) applies in respect of dispositions and terminations that occur after December 20, 2002. 53. (1) Paragraph 14(3)(a) of the Act is replaced by the following: (a) the amount determined for E in the definition "cumulative eligible capital" in subsection (5) in respect of the disposition of the property by the transferor or, if the property is the subject of an election under subsection (1.01) by the transferor, 3/4 of the actual proceeds referred to in that subsection, (2) The description of A in the definition "cumulative eligible capital" in subsection 14(5) of the Act is replaced by the following: A is the amount, if any, by which 3/4 of the total of all eligible capital expenditures in respect of the business made or incurred by the taxpayer after the taxpayer's adjustment time and before that time exceeds the total of all amounts each of which is determined by the formula 1/2 × (A.1 - A.2) × (A.3/A.4) where A.1 is the amount required, because of paragraph (1)(b) or 38(a), to be included in the income of a person or partnership (in this definition referred to as the "transferor") not dealing at arm's length with the taxpayer in respect of the disposition after December 20, 2002 of a property that was an eligible capital property acquired by the taxpayer directly or indirectly, in any manner whatever, from the transferor and not disposed of by the taxpayer before that time, A.2 is the total of all amounts that can reasonably be considered to have been claimed as deductions under section 110.6 by the transferor in respect of that disposition, A.3 is the transferor's proceeds from that disposition, and A.4 is the transferor's total proceeds of disposition of eligible capital property in the taxation year of the transferor in which the property described in A.1 was disposed of, (3) The description of R in the definition "cumulative eligible capital" in subsection 14(5) of the Act is replaced by the following: R is the total of all amounts each of which is an amount included, in computing the taxpayer's income from the business for a taxation year that ended before that time and after the taxpayer's adjustment time (a) in the case of a taxation year that ends after February 27, 2000, under paragraph (1)(a), or (b) in the case of a taxation year that ended before February 28, 2000, (i) under subparagraph (1)(a)(iv), as that subparagraph applied in respect of that taxation year, or (ii) under paragraph (1)(b), as that paragraph applied in respect of that taxation year, to the extent that the amount so included is in respect of an amount included in the amount determined for P; (4) Section 14 of the Act is amended by adding the following after subsection (5): Restrictive covenant amount (5.1) The description of E in the definition "cumulative eligible capital" in subsection (5) does not apply to an amount that is received or receivable by a taxpayer in a taxation year if that amount is required to be included in the taxpayer's income because of subsection 56.4(2). (5) The portion of subsection 14(6) of the Act before paragraph (a) is replaced by the following: Exchange of property (6) If in a taxation year (in this subsection referred to as the "initial year") a taxpayer disposes of an eligible capital property (in this section referred to as the taxpayer's "former property") and the taxpayer so elects under this subsection in the taxpayer's return of income for the year in which the taxpayer acquires an eligible capital property that is a replacement property for the taxpayer's former property, the amount, not exceeding the amount that would otherwise be included in the amount determined for E in the definition "cumulative eligible capital" in subsection (5) (if the description of E in that definition were read without reference to "3/4 of") in respect of a business, that has been used by the taxpayer to acquire the replacement property before the later of the end of the first taxation year after the initial year and 12 months after the end of the initial year (6) Subsections (1) to (3) apply to taxation years that end after February 27, 2000, except that the expression "disposition after December 20, 2002 of a property that was an eligible capital property" in the description of A.1 in the description of A in the definition "cumulative eligible capital" in subsection 14(5) of the Act, as enacted by subsection (2), is to be read as the expression "disposition after 2003 of a property that was an eligible capital property" if (a) the taxpayer referred to in that description of A.1 acquired the property referred to in that description from the transferor referred to in that description; (b) the property was so acquired under an agreement in writing made before December 21, 2002, between the transferor, or a particular person that controlled the transferor, and another person who dealt at an arm's length with the transferor and the particular person; and (c) no clause in the agreement or any other arrangement allows an obligation of any party to the agreement to be changed, reduced or waived in the event of a change to, or an adverse assessment under, the Act. (7) Subsection (4) applies after October 7, 2003. (8) Subsection (5) applies in respect of dispositions that occur in taxation years that end on or after December 20, 2001. 54. (1) Subsection 15(1.21) of the French version of the Act is replaced by the following: Montant remis (1.21) Pour l'application du paragraphe (1.2), le « montant remis » à un moment donné sur une dette émise par un débiteur s'entend au sens qui serait donné à cette expression par le paragraphe 80(1) si, à la fois : a) la dette était une dette commerciale, au sens du paragraphe 80(1), émise par le débiteur; b) il n'était pas tenu compte d'un montant inclus dans le calcul du revenu (autrement que par l'effet de l'alinéa 6(1)a)) en raison du règlement ou de l'extinction de la dette; c) il n'était pas tenu compte des alinéas f) et h) de l'élément B de la formule figurant à la définition de « montant remis » au paragraphe 80(1); d) il n'était pas tenu compte des alinéas 80(2)b) et q). (2) Subsection 15(2) of the French version of the Act is replaced by the following: Dette d'un actionnaire (2) La personne ou la société de personnes - actionnaire d'une société donnée, personne ou société de personnes rattachée à un tel actionnaire ou associé d'une société de personnes, ou bénéficiaire d'une fiducie, qui est un tel actionnaire - qui, au cours d'une année d'imposition, obtient un prêt ou devient la débitrice de la société donnée, d'une autre société liée à celle-ci ou d'une société de personnes dont la société donnée ou une société liée à celle-ci est un associé est tenue d'inclure le montant du prêt ou de la dette dans le calcul de son revenu pour l'année. Le présent paragraphe ne s'applique pas aux sociétés résidant au Canada ni aux sociétés de personnes dont chacun des associés est une société résidant au Canada. (3) Subsection (1) applies to taxation years that end after February 21, 1994. (4) Subsection (2) applies to loans made and indebtedness arising in the 1990 and subsequent taxation years. 55. (1) Subsection 18(1) of the Act is amended by striking out the word "and" at the end of paragraph (u), by adding the word "and" at the end of paragraph (v) and by adding the following after paragraph (v): Underlying payments on qualified securities (w) except as expressly permitted, an amount that is deemed by subsection 260(5.1) to have been received by another person as an amount described in any of paragraphs 260(5.1)(a) to (c). (2) Paragraph 18(14)(c) of the Act is replaced by the following: (c) the disposition is not a disposition that is deemed to have occurred by section 70, subsection 104(4), section 128.1, paragraph 132.2(3)(a) or (c) or subsection 138(11.3) or 149(10); (3) Subsection (1) applies after 2001. (4) Subsection (2) applies to dispositions that occur after 1998. 56. (1) Subsection 18.1(15) of the Act is replaced by the following: Non-application - risks ceded between insurers (15) Subsections (2) to (13) do not apply to a taxpayer's matchable expenditure in respect of a right to receive production if (a) the expenditure is in respect of commissions, or other expenses, related to the issuance of an insurance policy for which all or a portion of a risk has been ceded to the taxpayer; and (b) the taxpayer and the person to whom the expenditure is made, or is to be made, are both insurers who are subject to the supervision of (i) the Superintendent of Financial Institutions, if the taxpayer or that person, as the case may be, is an insurer who is required by law to report to the Superintendent of Financial Institutions, or (ii) the Superintendent of Insurance, or other similar officer or authority, of the province under whose laws the insurer is incorporated, in any other case. Non-application - no rights, tax benefits or shelters (16) Subsections (2) to (13) do not apply to a taxpayer's matchable expenditure in respect of a right to receive production if (a) no portion of the matchable expenditure can reasonably be considered to have been paid to another taxpayer, or to a person or partnership with whom the other taxpayer does not deal at arm's length, to acquire the right from the other taxpayer; (b) no portion of the matchable expenditure can reasonably be considered to relate to a tax shelter or a tax shelter investment (within the meaning assigned by subsection 143.2(1)); and (c) none of the main purposes for making the matchable expenditure can reasonably be considered to have been to obtain a tax benefit for the taxpayer, a person or partnership with whom the taxpayer does not deal at arm's length, or a person or partnership that holds, directly or indirectly, an interest in the taxpayer. Revenue exception (17) Paragraph (4)(a) does not apply in determining the amount for a taxation year that may be deducted in respect of a taxpayer's matchable expenditure in respect of a right to receive production if (a) before the end of the taxation year in which the matchable expenditure is made, the total of all amounts each of which is included in computing the taxpayer's income for the year (other than any portion of any of those amounts that is the subject of a reserve claimed by the taxpayer for the year under this Act) in respect of the right to receive production that relates to the matchable expenditure exceeds 80% of the matchable expenditure; and (b) no portion of the matchable expenditure can reasonably be considered to have been paid to another taxpayer, or to a person or partnership with whom the other taxpayer does not deal at arm's length, to acquire the right from the other taxpayer. (2) Subject to subsection (3), subsection (1) applies in respect of expenditures made by a taxpayer on or after September 18, 2001 in respect of a right to receive production, except if (a) the expenditure was (i) required to be made under a written agreement made by the taxpayer before September 18, 2001, (ii) made under, or described in, the terms of a prospectus, preliminary prospectus or registration statement that was, before September 18, 2001, filed with a public authority in Canada in accordance with the securities legislation of Canada or of a province and, if required by law, accepted for filing by the public authority before September 18, 2001, or (iii) made under, or described in, the terms of an offering memorandum distributed as part of an offering of securities if (A) the memorandum contains a complete, or substantially complete, description of the securities contemplated in the offering as well as the terms and conditions of the offering, (B) the memorandum was distributed before September 18, 2001, (C) solicitations in respect of a sale of the securities contemplated in the offering were made before September 18, 2001, and (D) the sale of the securities contemplated in the offering was substantially in accordance with the memorandum; (b) the expenditure was made before 2002; (c) the expenditure was made in consideration for services that were rendered in Canada before 2002 in respect of an activity, or a business, all or substantially all of which was carried on in Canada; (d) there is no agreement, or other arrangement, under which the obligation of any taxpayer in respect of the expenditure can, on or after September 18, 2001, be changed, reduced or waived if there is a change to, or an adverse assessment under, the Act; (e) if the right to receive production is, or is related to, a tax shelter investment, a tax shelter identification number in respect of the tax shelter was obtained before September 18, 2001; and (f) if the expenditure was made under, or described in, the terms of a document that is a prospectus, a preliminary prospectus, a registration statement or an offering memorandum (and regardless of whether the expenditure was also made under a written agreement) (i) all of the funds raised pursuant to the document that may reasonably be used to make a matchable expenditure were received by the taxpayer before 2002, (ii) all or substantially all of the securities distributed pursuant to the document for the purpose of raising the funds described in subparagraph (i) were acquired before 2002 by a person who is not (A) a promoter, or an agent of a promoter, of the securities, other than an agent of the promoter who acquired the security as principal and not for resale, (B) a vendor of the right to receive production, (C) a broker or dealer in securities, other than a person who acquired the security as principal and not for resale, or (D) a person who does not deal at arm's length with a person to whom clause (A) or (B) applies, and (iii) all or substantially all of the funds raised pursuant to the document before 2002 were used to make expenditures that were required to be made pursuant to agreements in writing made before September 18, 2001. (3) Subsection (1) does not apply to an expenditure made by a taxpayer in respect of a right to receive production in respect of a particular film or video production if (a) expenditures in respect of the particular film or video production (i) were made before September 18, 2001 (as determined, for the purpose of this paragraph, without reference to subsection 143.2(10) of the Act, except if a repaid amount for the purposes of that subsection is paid after 2002), or (ii) were required to be made by the taxpayer under a written agreement made before September 18, 2001 by the taxpayer; (b) principal photography of the particular film or video production (i) began before 2002, (ii) was primarily completed before April 2002, and (iii) was conducted primarily in Canada; (c) the expenditure (i) was made before April 2002 in the course of the taxpayer's business of providing film production services in respect of the particular film or video production (as determined for the purpose of this subparagraph without reference to subsection 143.2(10) of the Act, except to the extent that a repaid amount for the purposes of that subsection is paid after 2002), (ii) was made under, or described in, the terms of (A) a prospectus, preliminary prospectus or registration statement that was, before September 18, 2001, filed with a public authority in Canada in accordance with the securities legislation of Canada or of a province and, if required by law, accepted for filing by the public authority before September 18, 2001, or (B) an offering memorandum distributed as part of an offering of securities if (I) the memorandum contains a complete, or substantially complete, description of the securities contemplated in the offering as well as the terms and conditions of the offering, (II) the memorandum was distributed before September 18, 2001, (III) solicitations in respect of a sale of the securities contemplated in the offering have been made before September 18, 2001, and (IV) the sale of the securities contemplated in the offering was substantially in accordance with the memorandum, and (iii) was not an amount in respect of advertising, marketing, promotion or market research; (d) except where the particular film or video production is a designated production of the taxpayer, at least 75% of the total of all expenditures, each of which is an expenditure made by the taxpayer in the course of the business referred to in subparagraph (c)(i), is an expenditure described for the purpose of that subparagraph made in consideration for the supply of goods or services that are supplied or rendered in Canada before April 2002 by persons that are subject to tax on the expenditure under Part I or XIII of the Act; (e) there is no agreement, or other arrangement, under which the obligation of any taxpayer to acquire a security distributed pursuant to the prospectus, preliminary prospectus, registration statement or offering memorandum can, after September 18, 2001, be changed, reduced or waived if there is a change to, or an adverse assessment under, the Act; (f) if the right to receive production is, or is related to, a tax shelter investment, a tax shelter identification number in respect of the tax shelter was obtained before September 18, 2001; (g) all of the funds raised pursuant to the prospectus, preliminary prospectus, registration statement or offering memorandum that may reasonably be used to make a matchable expenditure before April 2002 in respect of the particular film or video production are received by the taxpayer before 2003; (h) all of the securities distributed pursuant to the prospectus, preliminary prospectus, registration statement or offering memorandum for the purpose of raising the funds described in paragraph (g) were acquired before 2002; (i) all or substantially all of the securities distributed pursuant to the prospectus, preliminary prospectus, registration statement or offering memorandum for the purpose of raising the funds described in paragraph (g) were acquired by a person who is not (i) a promoter, or an agent of a promoter, of the securities, other than an agent of the promoter who acquired the security as principal and not for resale, (ii) a vendor of the right to receive production, (iii) a broker or dealer in securities, other than a person who acquired the security as principal and not for resale, or (iv) a person who does not deal at arm's length with a person referred to in subparagraph (i) or (ii); and (j) except where the particular film or video production is a designated production of the taxpayer, all or substantially all of the matchable expenditures made by the taxpayer that are wholly attributable to the principal photography of the particular film or video production are wholly attributable to principal photography conducted in Canada. (4) For the purpose of paragraphs (3)(d) and (j), a designated production of a taxpayer is (a) a film or video production in respect of which (i) all of the expenditures made by the taxpayer in respect of the particular film or video production were required to be made under a written agreement made by the taxpayer before September 18, 2001, (ii) if the taxpayer is a partnership, (A) the taxpayer's expenditures in respect of the particular film or video production were funded, in whole or in part, with funds raised from the initial contribution of capital of members of the taxpayer, pursuant to subscriptions in writing for the issue of units in the taxpayer, (B) all or substantially all of those written subscriptions were received by the taxpayer on or before September 18, 2001, (C) at least one member of the taxpayer referred to in subparagraph (i) is a partnership (in this subsection referred to as a "master partnership"), (D) the subscriptions in writing of all master partnerships for units in the taxpayer were funded, in whole or in part, with funds raised from the initial contribution of capital of members of the master partnerships, pursuant to subscriptions in writing for the issue of units in the master partnerships, and (E) all or substantially all of the subscriptions in writing referred to in clause (D) were received by the master partnership on or before September 18, 2001, (iii) if a member of a particular master partnership is a partnership (in this subsection referred to as an "original master partnership"), (A) the subscriptions in writing of all original master partnerships for units in the particular master partnership were funded, in whole or in part, with funds raised from the initial contribution of capital of members of the original master partnerships, pursuant to subscriptions in writing for the issue of units in the original master partnerships, and (B) all or substantially all of those written subscriptions were received by the original master partnership on or before September 18, 2001, and (iv) no member of an original master partnership is a partnership, an interest in which is a tax shelter; or (b) a film or video production in respect of which (i) principal photography was all or substantially all complete before September 18, 2001, and (ii) all or substantially all of the taxpayer's expenditures were made on or before September 18, 2001 (as determined, for the purpose of this paragraph, without reference to subsection 143.2(10) of the Act, except if a repaid amount for the purposes of that subsection is paid after 2002). 57. (1) Subsection 20(8) of the Act is amended by striking out the word "or" at the end of paragraph (a) and by adding the following after paragraph (b): (c) the purchaser of the property sold was a corporation that, immediately after the sale, (i) was controlled, directly or indirectly, in any manner whatever, by the taxpayer, (ii) was controlled, directly or indirectly, in any manner whatever, by a person or group of persons that controlled the taxpayer, directly or indirectly, in any manner whatever, or (iii) controlled the taxpayer, directly or indirectly, in any manner whatever; or (d) the purchaser of the property sold was a partnership in which the taxpayer was, immediately after the sale, a majority interest partner. (2) Subsection 20(12) of the Act is replaced by the following: Foreign non-business income tax (12) In computing the income of a taxpayer who is resident in Canada at any time in a taxation year from a business or property for the year, there may be deducted any amount that the taxpayer claims that does not exceed the non-business income tax paid by the taxpayer for the year to the government of a country other than Canada (within the meaning assigned by subsection 126(7) read without reference to paragraphs (c) and (e) of the definition "non-business income tax" in that subsection) in respect of that income, other than any of those taxes paid that can, in whole or in part, reasonably be regarded as having been paid by a corporation in respect of income from a share of the capital stock of a foreign affiliate of the corporation. (3) Paragraph 20(16)(a) of the Act is replaced by the following: (a) the total of all amounts used to determine A to D.1 in the definition "undepreciated capital cost" in subsection 13(21) in respect of a taxpayer's depreciable property of a particular class exceeds the total of all amounts used to determine E to K in that definition in respect of that property, and (4) Subsection 20(16.1) of the Act is replaced by the following: Non-application of subsection (16) (16.1) Subsection (16) does not apply (a) in respect of a passenger vehicle of a taxpayer that has a cost to the taxpayer in excess of$20,000 or any other amount that is prescribed; and

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

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

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

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

(a)  subsection 20(8) of the Act, as it read immediately before the enactment of subsection (1), applies in respect of the property; and

(b)  for the purpose of applying paragraph 20(1)(n) of the Act to the taxpayer for a taxation year in respect of the property, a reasonable amount as a reserve in respect of an amount not due in respect of the sale may not exceed the amount that would be reasonable if the proceeds from any subsequent disposition of the property that the purchaser receives before the end of the taxation year were received by the taxpayer.

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

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

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

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

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

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

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

Allocation of gain re certain gifts

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

(a)  those paragraphs apply only to that proportion of the taxpayer's capital gain in respect of the gift that the eligible amount of the gift is of the taxpayer's proceeds of disposition in respect of the gift; and

(b)  paragraph 38(a) applies to the extent that the taxpayer's capital gain in respect of the gift exceeds the amount of the capital gain to which paragraph 38(a.1) or (a.2) applies.

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

(c)  the amount that the taxpayer claims in prescribed form filed with the taxpayer's return of income for the particular year, not exceeding the eligible amount of the gift, where the taxpayer is not deemed by subsection 118.1(13) to have made a gift of property before the end of the particular year as a consequence of a disposition of the security by the donee or as a consequence of the security ceasing to be a non-qualifying security of the taxpayer before the end of the particular year.

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

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

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

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

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

(b)  a share of the capital stock of a corporation that is acquired in exchange for another share in a transaction is deemed to be a property that is identical to the other share if

(i)  section 51, 86, or 87 applies to the transaction, or

(ii)  the following conditions are met, namely,

(A)  section 85.1 applies to the transaction,

(B)  subsection (3.4) applied to a prior disposition of the other share, and

(C)  none of the times described in any of subparagraphs (3.4)(b)(i) to (v) has occurred in respect of the prior disposition;

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

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

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

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

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

(a)  the portion of the adjusted cost base to the taxpayer of the land immediately before the disposition that can reasonably be regarded as attributable to the covenant, easement or real servitude, as the case may be, is deemed to be equal to the amount determined by the formula

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

Life estates in real property

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

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

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

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

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

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

(c)  the former property of the taxpayer was disposed of to a partnership in which the taxpayer was, immediately after the disposition, a majority interest partner.

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

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

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

(a)  subsection 44(7) of the Act, as it read immediately before the enactment of subsection (2), applies in respect of the disposition of property; and

(b)  for the purpose of applying subparagraph 44(1)(e)(iii) of the Act to the taxpayer for a taxation year in respect of the property, a reasonable amount as a reserve in respect of the proceeds of disposition may not exceed the amount that would be reasonable if the proceeds from any subsequent disposition of the property that the purchaser receives before the end of the taxation year were received by the taxpayer.

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

Special rule - re eligible small business corporation share exchanges

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

(a)  section 51, paragraph 85(1)(h), subsection 85.1(1), section 86 or subsection 87(4) applied to the individual in respect of the new shares; and

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

Special rule - re active business corporation share exchanges

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

(a)  section 51, paragraph 85(1)(h), subsection 85.1(1), section 86 or subsection 87(4) applied to the individual in respect of the new shares;

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

(b)  the new shares (or shares for which the new shares are substituted property) were

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

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

(A)  the corporation that issued the old shares, or

(B)  the individual, or

(iii)  issued, by a corporation that acquired the old shares (or by another corporation related to that corporation), as part of the transaction or event or series of transactions or events that included that acquisition of the old shares; and

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

Order of disposition of shares

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

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

(6)  Subsection (3) applies in respect of dispositions that occur after February 27, 2004.

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

65.  (1)  Paragraph 52(3)(a) of the Act is replaced by the following:

(a)  where the stock dividend is a dividend, the amount, if any, by which

(i)  the amount of the stock dividend

exceeds

(ii)  the amount of the dividend that the shareholder may deduct under subsection 112(1) in computing the shareholder's taxable income,

(2)  Subsection (1) applies in respect of amounts received on or after ANNOUNCEMENT DATE.

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

(b)  where the property is a share of the capital stock of a corporation resident in Canada, the amount, if any, by which

(i)  the total of all amounts each of which is the amount of a dividend on the share deemed by subsection 84(1) to have been received by the taxpayer before that time

exceeds

(ii)  the portion of the total determined under subparagraph (i) that relates to dividends

(A)  in respect of which the taxpayer was permitted a deduction under subsection 112(1) in computing the taxpayer's taxable income, and

(B)  that arose directly or indirectly as a result of a conversion of contributed surplus into
paid-up capital;

(2)  Paragraph 53(1)(e) of the Act is amended by adding the following after subparagraph (iv):

(iv.1)  each amount that is in respect of a specified amount described in subsection 80.2(1) and that is paid by the taxpayer to the partnership, to the extent that the amount paid is not deductible in computing the income of the taxpayer,

(3)  Subparagraph 53(2)(c)(iii) of the Act is replaced by the following:

(iii)  any amount deemed by subsection 110.1(4) or 118.1(8) to have been the eligible amount of a gift made, or by subsection 127(4.2) to have been an amount contributed, by the taxpayer by reason of the taxpayer's membership in the partnership at the end of a fiscal period of the partnership ending before that time,

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

Recomputation of adjusted cost base on transfers and deemed dispositions

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

(5)  Subsection (1) applies in respect of dividends received on or after ANNOUNCEMENT DATE.

(6)  Subsection (2) applies to payments made in taxation years that end after 2002.

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

(8)  Subsection (4) applies after February 27, 2004.

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

(c)  a disposition deemed by paragraph 33.1(11)(a), subsection 45(1), section 50 or 70, subsection 104(4), section 128.1, paragraph 132.2(3)(a) or (c), subsection 138(11.3) or 142.5(2), paragraph 142.6(1)(b) or subsection 144(4.1) or (4.2) or 149(10) to have been made,

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

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

Exception to principal residence rules

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

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

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

(c)  no holder of the shares is entitled to receive on the redemption, cancellation or acquisition of the shares by the corporation or by any person with whom the corporation does not deal at arm's length an amount (other than a premium for early redemption) that is greater than the total of the fair market value of the consideration for which the shares were issued and the amount of any unpaid dividends on the shares, and

(d)  the shares are non-voting in respect of the election of the board of directors except in the event of a failure or default under the terms or conditions of the shares;

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

"qualified person"

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

(a)  at any time before the distribution,

(i)  all of the shares of each class of the capital stock of the distributing corporation that includes shares that cause that person or partnership to be a specified shareholder of the distributing corporation (in this definition all of those shares in all of those classes are referred to as the "exchanged shares") are, in the circumstances described in paragraph (a) of the definition "permitted exchange", exchanged for consideration that consists solely of shares of a specified class of the capital stock of the distributing corporation (in this definition referred to as the "new shares"), or

(ii)  the terms or conditions of all of the exchanged shares are amended (which shares are in this definition referred to after the amendment as the "amended shares") and the amended shares are shares of a specified class of the capital stock of the distributing corporation,

(b)  immediately before the exchange or amendment, the exchanged shares are listed on a prescribed stock exchange,

(c)  immediately after the exchange or amendment, the new shares or the amended shares, as the case may be, are listed on a prescribed stock exchange,

(d)  the exchanged shares would be shares of a specified class if they were not convertible into, or exchangeable for, other shares,

(e)  the new shares or the amended shares, as the case may be, and the exchanged shares are
non-voting in respect of the election of the board of directors of the distributing corporation except in the event of a failure or default under the terms or conditions of the shares, and

(f)  no holder of the new shares or the amended shares, as the case may be, is entitled to receive on the redemption, cancellation or acquisition of the new shares or the amended shares, as the case may be, by the distributing corporation or by any person with whom the distributing corporation does not deal at arm's length an amount (other than a premium for early redemption) that is greater than the total of the fair market value of the consideration for which the exchanged shares were issued and the amount of any unpaid dividends on the new shares or on the amended shares, as the case may be;

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

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

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

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

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

(ii)  section 93; and

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

(B)  the vendor (other than a qualified person in relation to the distribution) was, at any time during the course of the series, a specified shareholder of the distributing corporation or of the transferee corporation, and

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

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

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

Specified shareholder exclusion

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

Amalgamation of related corporations

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

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

Unlisted shares deemed listed

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

(a)  a dividend, to which subsection (2) does not apply because of paragraph (3)(b), is received in the course of a reorganization;

(b)  in contemplation of the reorganization

(i)  the reorganization share is issued to a taxpayer by a public corporation in exchange for another share of that corporation (in this subsection referred to as the "old share") owned by the taxpayer, and

(ii)  the reorganization share is exchanged by the taxpayer for a share of another public corporation (in this subsection referred to as the "new share") in an exchange that would be a permitted exchange if the definition "permitted exchange" were read without reference to paragraph (a) and subparagraph (b)(ii) of that definition;

(c)  immediately before the exchange, the old share

(i)  is listed on a prescribed stock exchange, and

(ii)  is not taxable Canadian property of the taxpayer; and

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

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

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

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

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

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

70.  (1)  Paragraph 56(1)(a) of the Act is amended by striking out the word "or" at the end of subparagraph (v), by adding the word "or" at the end of subparagraph (vi) and by adding the following after subparagraph (vi):

(vii)  a benefit under the Act respecting parental insurance R.S.Q., c. A-29.011;

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

(m)  any amount received by the taxpayer, or by a person who does not deal at arm's length with the taxpayer, in the year on account of a debt in respect of which a deduction was made under paragraph 60(f) in computing the taxpayer's income for a preceding taxation year;

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

(iv)  financial assistance provided under a program established by a government, or government agency, in Canada that provides income replacement benefits similar to income replacement benefits provided under a program established under the Employment Insurance Act;

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

Foreign retirement arrangement

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

(5)  Subsection (1) applies to the 2006 and subsequent taxation years.

(6)  Subsection (2) applies after October 7, 2003.

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

(8)  Subsection (4) applies to the 1998 and subsequent taxation years except that, for taxation years that end before 2002, subsection 56(12) of the Act, as enacted by subsection (4), is to be read as follows:

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

(a)  if an amount in respect of a foreign retirement arrangement is considered, under
section 408A(d)(3)(C) of the Internal Revenue Code of 1986 of the United States (in this subsection referred to as the "Code"), to be distributed to an individual as a result of a conversion of the arrangement after 1998 and before 2002, the amount is deemed to be received by the individual as a payment out of the arrangement in the taxation year that includes the time of the conversion; and

(b)  if an individual received an amount as a payment out of or under a foreign retirement arrangement in 1998, or an amount is considered under section 408A(d)(3)(C) of the Code to be distributed to the individual as a result of a conversion of the arrangement in 1998, the individual was resident in Canada at the time of the receipt or conversion and the amount is an amount to which section 408A(d)(3)(A)(iii) of the Code applies,

(i)  the amount is deemed not to have been received by the individual, and

(ii)  an amount equal to the amount that is included under section 408A(d)(3)(A)(iii) or
408A(d)(3)(E) of the Code in the individual's gross income for a particular taxable year is deemed to be an amount received by the individual, in the taxation year that includes the day on which the particular taxable year begins, as a payment out of the arrangement, where the expressions "gross income" and "taxable year" in this subparagraph have the meanings assigned to those expressions by the Code.

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

Restrictive Covenants

Definitions

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

"eligible corporation"

"eligible corporation", of a taxpayer, means a taxable Canadian corporation of which,.

(a)  the taxpayer holds, directly or indirectly, shares of the capital stock; and

(b)  taxpayers with whom the taxpayer does not deal at arm's length (determined without reference to paragraph 251(5)(b)) hold in aggregate, directly or indirectly, less than 10% of the issued and outstanding share capital which holdings have an aggregate fair market value of less than 10% of the fair market value of all of the issued and outstanding shares of that taxable Canadian corporation.

"eligible interest"

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

(a)  a partnership interest in a partnership that carries on a business;

(b)  a share of the capital stock of a corporation that carries on a business; or

(c)  a share of the capital stock of a corporation 90% or more of the fair market value of which is attributable to eligible interests in one other corporation.

"goodwill amount"
« montant pour achalandage »

"goodwill amount", of a taxpayer, is an amount received or receivable by the taxpayer as consideration for the disposition by the taxpayer of goodwill, and that is required by the description of E in the definition "cumulative eligible capital" in subsection 14(5) to be included in computing the cumulative eligible capital of a business carried on by the taxpayer through a permanent establishment located in Canada.

"permanent establishment"
« établissement stable »

"permanent establishment" means a permanent establishment as defined for the purpose of subsection 16.1(1).

"restrictive covenant"
« clause restrictive »

"restrictive covenant", of a taxpayer, means an agreement entered into, an undertaking made, or a waiver of an advantage or right by the taxpayer (other than an agreement or undertaking for the disposition of the taxpayer's property or - except where the obligation being satisfied is in respect of a right to property or services that the taxpayer acquired for less than its fair market value - for the satisfaction of an obligation described in section 49.1 that is not a disposition), whether legally enforceable or not, that affects, or is intended to affect, in any way whatever, the acquisition or provision of property or services by the taxpayer or by another taxpayer that does not deal at arm's length with the taxpayer.

"taxpayer"
« contribuable »

"taxpayer" includes a partnership.

Income - restrictive covenants

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

Non-application of subsection (2)

(3)  Subsection (2) does not apply to an amount received or receivable by a particular taxpayer in a taxation year in respect of a restrictive covenant granted by the particular taxpayer to another taxpayer (referred to in this subsection and subsection (4) as the "purchaser") with whom the particular taxpayer deals at arm's length (determined without reference to paragraph 251(5)(b)), if

(a)  section 5 or 6 applied to include the amount in computing the particular taxpayer's income for the taxation year or would have so applied if the amount had been received in the taxation year;

(b)  the amount would, if this Act were read without reference to this section, be required by the description of E in the definition "cumulative eligible capital" in subsection 14(5) to be included in computing the particular taxpayer's cumulative eligible capital in respect of the business to which the restrictive covenant relates, and the particular taxpayer elects (or if the amount is payable by the purchaser in respect of a business carried on in Canada by the purchaser, the particular taxpayer and the purchaser jointly elect) in prescribed form to apply this paragraph in respect of the amount; or

(c)  subject to subsection (10), the amount directly relates to the particular taxpayer's disposition of property that is, at the time of the disposition, an eligible interest in the partnership or corporation that carries on the business to which the restrictive covenant relates, or that is at that time an eligible interest by virtue of paragraph (c) of the definition "eligible interest" where the other corporation referred to in that paragraph carries on the business to which the restrictive covenant relates, and

(i)  the disposition is to the purchaser (or to a person related to the purchaser),

(ii)  the amount is consideration for an undertaking by the particular taxpayer not to provide, directly or indirectly, property or services in competition with the property or services provided or to be provided by the purchaser (or by a person related to the purchaser),

(iii)  the restrictive covenant may reasonably be considered to have been granted to maintain or preserve the value of the eligible interest disposed of to the purchaser;

(iv)  if the restrictive covenant is granted on or after July 18, 2005, subsection 84(3) does not apply to the disposition,

(v)  neither section 85 nor subsection 97(2) applies to the disposition of the eligible interest by the particular taxpayer,

(vi)  the amount is added to the particular taxpayer's proceeds of disposition, as defined by section 54, for the purpose of applying this Act to the disposition of the particular taxpayer's eligible interest, and

(vii)  the particular taxpayer and the purchaser elect in prescribed form to apply this paragraph in respect of the amount.

Treatment of purchaser

(4)  An amount paid or payable by a purchaser for a restrictive covenant is

(a)  if the amount is required because of section 5 or 6 to be included in computing the income of an employee of the purchaser, to be considered to be wages paid or payable by the purchaser to the employee;

(b)  if an election has been made under paragraph (3)(b) in respect of the amount, to be considered to be incurred by the purchaser on account of capital for the purpose of applying the definition "eligible capital expenditure" in subsection 14(5) and not to be an amount paid or payable for all other purposes of the Act; and

(c)  if an election has been made under paragraph (3)(c), in respect of the amount and the amount relates to the purchaser's acquisition of property that is, immediately after the acquisition, an eligible interest of the purchaser, to be included in computing the cost to the purchaser of that interest and considered not to be an amount paid or payable for all other purposes of the Act.

Non-application of section 68

(5)  If this subsection applies in respect of a restrictive covenant granted by a taxpayer, section 68 does not apply to deem consideration to be received or receivable by the taxpayer for the restrictive covenant.

Application of subsection (5) - if employee provides covenant

(6)  Subsection (5) applies to a restrictive covenant if

(a)  the restrictive covenant is granted by an individual to another taxpayer with whom the individual deals at arm's length (referred to in this subsection as the "purchaser");

(b)  the restrictive covenant directly relates to the acquisition from one or more other persons (in this subsection and subsection (8) referred to as the "vendors") by the purchaser of an interest in the individual's employer, in a corporation related to that employer or in a business carried on by that employer;

(c)  the individual deals at arm's length with the employer and with the vendors;

(d)  the restrictive covenant is an undertaking by the individual not to provide, directly or indirectly, property or services in competition with property or services provided or to be provided by the purchaser (or by a person related to the purchaser) in the course of carrying on the business to which the restrictive covenant relates;

(e)  no proceeds are received or receivable by the individual for granting the restrictive covenant; and

(f)  the amount that can reasonably be regarded to be consideration for the restrictive covenant is received or receivable only by the vendors.

Application of subsection (5) - goodwill amount

(7)  Subject to subsection (11), subsection (5) applies to a restrictive covenant if

(a)  the restrictive covenant is granted by a taxpayer (in this subsection referred to as the "vendor") to another taxpayer with whom the vendor deals at arm's length (referred to in this subsection as the "purchaser");

(b)  the restrictive covenant is an undertaking of the vendor not to provide, directly or indirectly, property or services in competition with the property or services provided or to be provided by the purchaser (or by a person related to the purchaser) in the course of carrying on the business to which the restrictive covenant relates;

(c)  no proceeds are received or receivable by the vendor for granting the restrictive covenant;

(d)  the amount that can reasonably be regarded as being the consideration for the restrictive covenant is

(i)  included by the vendor in computing a goodwill amount of the vendor, or

(ii)  received or receivable by a corporation that was an eligible corporation of the vendor when the restrictive covenant was granted and included by the eligible corporation in computing a goodwill amount of the eligible corporation in respect of the business to which the restrictive covenant relates;

(e)  the restrictive covenant may reasonably be considered to have been granted to maintain or preserve the value of

(i)  goodwill acquired by the purchaser from the vendor, or

(ii)  goodwill acquired by the purchaser from the vendor's eligible corporation; and

(f)  neither section 85 nor subsection 97(2) applies to the disposition of the goodwill by the vendor or the vendor's eligible corporation;

(g)  no portion of the amount of consideration that can reasonably be regarded as being in part the consideration for the restrictive covenant is received or receivable, directly or indirectly in any manner whatever, by an individual (in this subsection and subsection (9) referred to as the "non arm's length individual") with whom the vendor does not deal at arm's length or by another taxpayer in which the non arm's length individual holds, directly or indirectly, an interest; and

(h)  the vendor and the purchaser or, if subparagraph (d)(ii) applies, the vendor, the eligible corporation and the purchaser, jointly elect in prescribed form to apply subsection (5) to the restrictive covenant.

Application of subsection (5) - disposition of property

(8)  Subject to subsection (11), subsection (5) applies to a restrictive covenant granted by a taxpayer if

(a)  the restrictive covenant is granted by the taxpayer (in this subsection referred to as the "vendor") to another taxpayer (in this subsection and subsection (9) referred to as the "purchaser") with whom the vendor deals at arm's length (determined without reference to paragraph 251(5)(b));

(b)  the restrictive covenant is an undertaking of the vendor not to provide, directly or indirectly, property or services in competition with the property or services provided or to be provided by the purchaser (or by a person related to the purchaser) in the course of carrying on the business to which the covenant relates;

(c)  it is reasonable to conclude that the restrictive covenant is integral to an agreement in writing

(i)  under which the vendor disposes of property (other than property to which subparagraph (ii) applies) to the purchaser for consideration that is received or receivable by the vendor, or

(ii)  under which shares of the capital stock of a corporation (in this subsection and subsection (9) referred to as the "target corporation") are disposed of to the purchaser;

(d)  where subparagraph (c)(i) applies, the consideration that can reasonably be regarded as being in part the consideration for the restrictive covenant is received or receivable by the vendor as consideration for the disposition of the property;

(e)  where subparagraph (c)(ii) applies, no portion of the amount of consideration that can reasonably be regarded as being in part the consideration for the restrictive covenant is received or receivable, directly or indirectly in any manner whatever, by an individual (in this subsection and subsection (9) referred to as the "non arm's length individual") with whom the vendor does not deal at arm's length or by another taxpayer in which the non arm's length individual holds, directly or indirectly, an interest;

(f)  subsection 84(3) does not apply to the disposition;

(g)  neither section 85 nor subsection 97(2) applies to the disposition; and

(h)  the restrictive covenant can reasonably be regarded to have been granted to maintain or preserve the fair market value of the vendor's property disposed of to the purchaser or of the shares of the target corporation disposed of to the purchaser.

To extent section 68 applies - capital gain election

(9)  If subsection (7) does not apply to a taxpayer's grant of a restrictive covenant solely because the condition in paragraph (7)(g) has not been satisfied, or if subsection (8) does not apply solely because the condition in paragraph (8)(e) has not been satisfied,

(a)  to the extent that the consideration that can reasonably be regarded as being in part the consideration for the restrictive covenant granted by the taxpayer is received or receivable by one or more non arm's length individuals and taxpayers in which one or more non arm's length individuals hold, directly or indirectly, an interest (in this subsection referred to as the "allocable portion"), section 68 applies only to that allocable portion;

(b)  a joint election may be filed in prescribed form by the taxpayer and each non arm's length individual and other taxpayer referred to in paragraph (a) to deem the portion of the allocable portion that would otherwise be considered by section 68 to be received or receivable in a taxation year by the taxpayer for granting the restrictive covenant to be received or receivable in the taxation year by the taxpayer as a goodwill amount, if paragraph (7)(g) has not been satisfied, or as proceeds of disposition from the disposition of capital property, if paragraph (8)(e) has not been satisfied;

(c)  if paragraph (b) applies to deem consideration to be received or receivable in the taxation by the taxpayer, except for the purpose of applying this subsection, that consideration is considered not to be received or receivable by each of the non arm's length individuals and other taxpayers who make the joint election with the taxpayer; and

(d)  for greater certainty, the outlay to the purchaser for the goodwill amount referred to in subsection (7), or the cost of the shares of the target corporation referred to in subsection (8), as the case may be, does not differ from the amount that those amounts would have been if subsection (7) or (8) had applied to all of the consideration paid or payable by the purchaser to the non arm's length individuals and other taxpayers referred to in paragraph (b) for the goodwill amount or capital stock of the target corporation, as the case may be.

Anti-avoidance rule - non-application of paragraph (3)(c)

(10)  Paragraph (3)(c) does not apply to an amount that would, if this Act were read without reference to subsections (2) to (15), be included in computing a taxpayer's income from a source that is an office or employment or a business or property.

Anti-avoidance - non-application of subsections (7), (8) and (9)

(11)  Subsections (7), (8) and (9) do not apply in respect of a taxpayer's grant of a restrictive covenant if one of the results of not applying section 68 to the consideration received or receivable in respect of the taxpayer's grant of the restrictive covenant would be that paragraph 3(a) would not apply to consideration that would, if this Act were read without reference to subsections (2) to (15), be included in computing a taxpayer's income from a source that is an office or employment or a business or property.

Clarification if subsection (2) applies - where another person receives the amount

(12)  For greater certainty, if subsection (2) applies to include in computing a taxpayer's income an amount received or receivable by another taxpayer, that amount is not to be included in computing the income of that other taxpayer.

Clarification if subsection (5) applies

(13)  For greater certainty, if subsection (5) applies in respect of a restrictive covenant granted by a taxpayer

(a)  the amount referred to in paragraph (6)(f) is to be added in computing the amount received or receivable by the vendors as consideration for the disposition of the interest referred to in paragraph (6)(b);

(b)  the amount that could reasonably be regarded as consideration referred to in
subparagraph (7)(d)(i) or (ii), as the case may be, is to be added in computing

(i)  the amount that is required by the description of E in the definition "cumulative eligible capital" in subsection 14(5) to be included in computing the cumulative eligible capital of a business carried on by the vendor through a permanent establishment located in Canada, or

(ii)  the amount that is required by the description of E in the definition "cumulative eligible capital" in subsection 14(5) to be included in computing the cumulative eligible capital of a business carried on by the eligible corporation through a permanent establishment located in Canada;

(c)  the amount that can reasonably be regarded as being in part consideration for a restrictive covenant received or receivable to which subsection (5) applies because of subsection (8) is to be added in computing the consideration

(i)  if subparagraph (8)(c)(i) applies, that is received or receivable by the vendor from the disposition of the property, and

(ii)  if subparagraph (8)(c)(ii) applies, that is received or receivable by each taxpayer who disposes of shares of the target corporation to the extent that consideration is received or receivable by each such other taxpayer.

Filing of prescribed form

(14)  For the purpose of paragraphs (3)(b) and (c), (7)(h) and (9)(b) an election in prescribed form filed under any of those provisions is to include a copy of the restrictive covenant and be filed

(a)  if the person who granted the restrictive covenant is a person resident in Canada when the restrictive covenant was granted, by the person with the Minister on or before the person's filing-due date for the taxation year that includes the day on which the restrictive covenant was granted; and

(b)  in any other case, with the Minister on or before the day that is six months after the day on which the restrictive covenant is granted.

Non-application of section 42

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

(2)  Subject to subsection (3), subsection (1) applies to

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

(b)  amounts paid or payable by a purchaser after October 7, 2003 other than to amounts paid or payable by the purchaser before 2005 under a grant of a restrictive covenant made in writing on or before October 7, 2003 between the purchaser and a taxpayer with whom the purchaser deals at arm's length.

(3)  For the purpose of applying subsection (1) to a restrictive covenant granted by a taxpayer before ANNOUNCEMENT DATE,

(a)  the definition "restrictive covenant" in subsection 56.4(1) of the Act, as enacted by subsection (1), is to be read without reference to the words "except where the obligation being satisfied is in respect of a right to property or services that the taxpayer acquired for less than its fair market value";

(b)  paragraph 56.4(3)(c) of the Act, as enacted by subsection (1), applies as enacted unless the taxpayer elects, no later than 180 days after this Act is assented to, by filing with the Minister of National Revenue an election in writing that this paragraph apply, in which case paragraph 56.4(3)(c) of the Act, as enacted by subsection (1), shall be read in respect of the restrictive covenant as follows:

(c)  the amount directly relates to the particular taxpayer's disposition of property that is, at the time of the disposition, an eligible interest in the partnership or corporation that carries on the business to which the restrictive covenant relates, or that is at that time an eligible interest by virtue of paragraph (c) of the definition "eligible interest" where the other corporation referred to in that paragraph carries on the business to which the restrictive covenant relates, and

(i)  the disposition is to the purchaser (or to a person related to the purchaser),

(ii)  the amount is consideration for an undertaking by the particular taxpayer not to provide, directly or indirectly, property or services in competition with the property or services provided or to be provided by the purchaser (or by a person related to the purchaser),

(iii)  the amount does not exceed the amount determined by the formula

A - B

where

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

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

(iv)  if the restrictive covenant is granted on or after July 18, 2005, subsection 84(3) does not apply to the disposition,

(v)  the amount is added to the particular taxpayer's proceeds of disposition, as defined by section 54, for the purpose of applying this Act to the disposition of the particular taxpayer's eligible interest, and

(vi)  the particular taxpayer and the purchaser elect in prescribed form to apply this paragraph in respect of the amount.

(c)  subsection 56.4(7), as enacted by subsection (1), is to be read without reference to paragraphs (f) and (g);

(d)  section 56.4, as enacted by subsection (1), is to be read without reference to subsections (10) and (11) in respect of restrictive covenants granted before ANNOUNCEMENT DATE; and

(e)  an election referred to in subsection 56.4(14) of the Act, as enacted by subsection (1), is deemed to be filed on a timely basis if it is filed on or before the day that is 180 days after the day on which this Act is assented to.

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

(f)  all debts owing to a taxpayer that are established by the taxpayer to have become bad debts in the taxation year and that are in respect of an amount included because of the operation of subsection 6(3.1) or 56.4(2) in computing the taxpayer's income in a preceding taxation year;

Quebec parental insurance plan - self-employed premiums

(g)  the amount determined by the formula

A - B

where

A is the total of all amounts each of which is an amount payable by the taxpayer in respect of
self-employed earnings for the taxation year as a premium under the Act respecting parental insurance R.S.Q., c. A-29.011, and

B is the total of all amounts each of which is an amount that would be payable by the taxpayer as an employee's premium under the Act respecting parental insurance R.S.Q., c. A-29.011 if those earnings were employment income of the taxpayer for the taxation year;

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

(B)  under which the taxpayer is the annuitant for a term not exceeding 18 years minus the age in whole years of the taxpayer at the time the annuity was acquired

(3)  Paragraph 60(n) of the Act is amended by striking out the word "and" at the end of subparagraph (v) and by adding the following after subparagraph (v):

(v.1)  a benefit described in subparagraph 56(1)(a)(vii), and

(4)  Paragraph 60(f) of the Act, as enacted by subsection (1), applies after October 7, 2003.

(5)  Paragraph 60(g) of the Act, as enacted by subsection (1), and subsection (3) apply to the 2006 and subsequent taxation years.

(6)  Subsection (2) applies after 1988.

73.  (1)  The Act is amended by adding the following after section 60.01:

60.011  (1)  For the purpose of subsection (2), a trust is at any particular time a lifetime benefit trust with respect to a taxpayer and the estate of a deceased individual if

(a)  immediately before the death of the deceased individual, the taxpayer

(i)  was both a spouse or common-law partner of the deceased individual and mentally infirm, or

(ii)  was both a child or grandchild of the deceased individual and dependent on the deceased individual for support because of mental infirmity; and

(b)  the trust is, at the particular time, a personal trust under which

(i)  no person other than the taxpayer may receive or otherwise obtain the use of, during the taxpayer's lifetime, any of the income or capital of the trust, and

(ii)  the trustees

(A)  are empowered to pay amounts from the trust to the taxpayer, and

(B)  are required - in determining whether to pay, or not to pay, an amount to the taxpayer - to consider the needs of the taxpayer including, without limiting the generality of the foregoing, the comfort, care and maintenance of the taxpayer.

Meaning of "qualifying trust annuity"

(2)  Each of the following is a qualifying trust annuity with respect to a taxpayer:

(a)  an annuity that meets the following conditions, namely,

(i)  it is acquired after 2005,

(ii)  the annuitant under it is a trust that is, at the time the annuity is acquired, a lifetime benefit trust with respect to the taxpayer and the estate of a deceased individual,

(iii)  it is for the life of the taxpayer (with or without a guaranteed period), or for a fixed term equal to 90 years minus the age in whole years of the taxpayer at the time it is acquired, and

(iv)  if it is with a guaranteed period or for a fixed term, it requires that, in the event of the death of the taxpayer during the guaranteed period or fixed term, any amounts that would otherwise be payable after the death of the taxpayer be commuted into a single payment;

(b)  an annuity that meets the following conditions, namely,

(i)  it is acquired after 1988,

(ii)  the annuitant under it is a trust under which the taxpayer is the sole person beneficially interested (determined without regard to any right of a person to receive an amount from the trust only on or after the death of the taxpayer) in amounts payable under the annuity,

(iii)  it is for a fixed term not exceeding 18 years minus the age in whole years of the taxpayer at the time it is acquired, and

(iv)  if it is acquired after 2005, it requires that, in the event of the death of the taxpayer during the fixed term, any amounts that would otherwise be payable after the death of the taxpayer be commuted into a single payment; and

(c)  an annuity that meets the following conditions, namely,

(i)  it is acquired

(A)  after 2000 and before 2005 at a time at which the taxpayer was mentally or physically infirm, or

(B)  in 2005 at a time at which the taxpayer was mentally infirm,

(ii)  the annuitant under it is a trust under which the taxpayer is the sole person beneficially interested (determined without regard to any right of a person to receive an amount from the trust only on or after the death of the taxpayer) in amounts payable under the annuity, and

(iii)  it is for the life of the taxpayer (with or without a guaranteed period), or for a fixed term equal to 90 years minus the age in whole years of the taxpayer at the time it is acquired.

Application of paragraph 60(l) to "qualifying trust annuity"

(3)  For the purpose of paragraph 60(l),

(a)  in determining if a qualifying trust annuity with respect to a taxpayer is an annuity described in subparagraph 60(l)(ii), clauses 60(l)(ii)(A) and (B) are to be read without regard to their requirement that the taxpayer be the annuitant under the annuity; and

(b)  if an amount paid to acquire a qualifying trust annuity with respect to a taxpayer would, if this Act were read without reference to this subsection, not be considered to have been paid by or on behalf of the taxpayer, the amount is deemed to have been paid on behalf of the taxpayer where

(i)  it is paid

(A)  by the estate of a deceased individual who was, immediately before death,

(I)  a spouse or common-law partner of the taxpayer, or

(II)  a parent or grandparent of the taxpayer on whom the taxpayer was dependent for support, or

(B)  by the trust that is the annuitant under the qualifying trust annuity, and

(ii)  it would, if it had been paid by the taxpayer, be deductible under paragraph 60(l) in computing the taxpayer's income for a taxation year and the taxpayer elects, in the taxpayer's return of income under this Part for that taxation year, to have this paragraph apply to the amount.

(2)  Subsection (1) applies after 1988 and, for the purpose of applying subparagraph 60.011(3)(b)(ii) of the Act, as enacted by subsection (1), to a taxation year that ends before 2005, a taxpayer is deemed to have made the election referred to in that subparagraph in respect of an amount paid to acquire a qualifying trust annuity if the taxpayer claimed, in their return of income for that taxation year, an amount as a deduction under paragraph 60(l) of the Act in respect of the amount paid to acquire the qualifying trust annuity.

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

(B)  a person certified in writing by a medical doctor to be a person who

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

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

Canadian exploration expenses to flow-through shareholder

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

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

Effect of renunciation

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

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

Frais engagés dans l'année suivante

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

a)  la société engage les frais au cours de l'année donnée;

a.1)  la convention a été conclue au cours de l'année précédente;

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

(iii)  seraient des dépenses visées à l'alinéa f) de la définition de « frais d'aménagement au Canada » au paragraphe 66.2(5) si le passage « à l'un des alinéas a) à e) » était remplacé par « aux alinéas a) ou b) »;

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

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

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

(d)  any right to a rental or royalty computed by reference to the amount or value of production from an oil or a gas well in Canada, or from a natural accumulation of petroleum or natural gas in Canada, if the payer of the rental or royalty has an interest in, or for civil law a right in, the well or accumulation, as the case may be, and 90% or more of the rental or royalty is payable out of, or from the proceeds of, the production from the well or accumulation,

(e)  any right to a rental or royalty computed by reference to the amount or value of production from a mineral resource in Canada, if the payer of the rental or royalty has an interest in, or for civil law a right in, the mineral resource and 90% or more of the rental or royalty is payable out of, or from the proceeds of, the production from the mineral resource,

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

"flow-through share"
« action accréditive »

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

(a)  to incur, in the period that begins on the day on which the agreement was made and ends 24 months after the month that includes that day, Canadian exploration expenses or Canadian development expenses in an amount not less than the consideration for which the share or right is to be issued, and

(b)  to renounce, in prescribed form and before March of the first calendar year that begins after that period, to the person in respect of the share or right, an amount in respect of the Canadian exploration expenses or Canadian development expenses so incurred by it not exceeding the consideration received by the corporation for the share or right;

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

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

(a)  subsection (3) does not apply to expenses incurred in January or February 1997 in respect of an agreement that was made in 1995; and

(b)  for the purpose of applying paragraph 66(12.66)(a.1) of the French version of the Act, as enacted by subsection (3), to expenses incurred in 1998, any agreement made in 1996 is deemed to have been made in 1997.

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

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

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

Amalgamation - partnership property

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

(a)  the predecessor corporation is deemed

(i)  to have owned, immediately before the particular time, that portion of each Canadian resource property and of each foreign resource property owned by the partnership at the particular time that is equal to the predecessor corporation's percentage share of the total of the amounts that would be paid to all members of the partnership if the partnership were wound up immediately before the particular time, and

(ii)  to have disposed of those portions to the new corporation at the particular time;

(b)  the new corporation is deemed to have, by way of the amalgamation, acquired those portions at the particular time; and

(c)  the income of the new corporation for a taxation year that ends after the particular time that can reasonably be attributable to production from those properties is deemed to be the lesser of

(i)  the new corporation's share of the part of the income of the partnership for fiscal periods of the partnership that end in the year that can reasonably be regarded as being attributable to production from those properties, and

(ii)  the amount that would be determined under subparagraph (i) for the year if the new corporation's share of the income of the partnership for the fiscal periods of the partnership that end in the year were determined on the basis of the percentage share referred to in paragraph (a).

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

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

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

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

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

(c)  the part of the amount that can reasonably be regarded as being consideration for the restrictive covenant is deemed to be an amount received or receivable by the taxpayer in respect of the restrictive covenant irrespective of the form or legal effect of the contract or agreement, and that part is deemed to be an amount paid or payable to the taxpayer by the person to whom the restrictive covenant was granted.

(3)  Subsections (1) and (2) apply on and after February 27, 2004, other than to a taxpayer's grant of a restrictive covenant made in writing by the taxpayer before February 27, 2004 between the taxpayer and a person with whom the taxpayer deals at arm's length.

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

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

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

Droits ou biens transférés aux bénéficiaires

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

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

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

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

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

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

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

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

b)  le représentant légal du contribuable peut, dans la déclaration de revenu du contribuable (sauf celle produite en vertu des paragraphes (2) ou 104(23), de l'alinéa 128(2)e) ou du paragraphe 150(4)) dans laquelle il énumère un ou plusieurs biens, sauf un compte de stabilisation du revenu net, qui ont été transférés ou distribués à la fiducie au moment du décès du contribuable ou postérieurement et par suite de ce décès et dont la juste valeur marchande globale immédiatement après ce décès est au moins égale au total des dettes non admissibles du contribuable, faire un choix pour que, à la fois :

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

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

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

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

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

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

(a)  the capital cost to the transferee of the particular property is deemed to be the amount that was the capital cost to the taxpayer of the particular property; and

(b)  the excess is deemed to have been allowed to the transferee in respect of the particular property under regulations made under paragraph 20(1)(a) in computing income for taxation years before the acquisition of the particular property.

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

82.  (1)  The Act is amended by adding the following after section 75.1:

Rules applicable with respect to "qualifying trust annuity"

75.2  Where an amount paid to acquire a qualifying trust annuity with respect to a taxpayer was deductible under paragraph 60(l) in computing the taxpayer's income,

(a)  any amount that is paid out of or under the annuity at any particular time after 2005 and before the death of the taxpayer is deemed to have been received out of or under the annuity at the particular time by the taxpayer, and not to have been received by any other taxpayer; and

(b)  if the taxpayer dies after 2005

(i)  an amount equal to the fair market value of the annuity at the time of the taxpayer's death is deemed to have been received, immediately before the taxpayer's death, by the taxpayer out of or under the annuity, and

(ii)  for the purpose of subsection 70(5), the annuity is to be disregarded in determining the fair market value (immediately before the taxpayer's death) of the taxpayer's interest in the trust that is the annuitant under the annuity.

(2)  Subsection (1) applies after 2005.

83.  (1)  Section 80.2 of the Act is replaced by the following:

Application

80.2  (1)  Subsections (2) to (13) apply if

(a)  in a taxation year, a taxpayer, under the terms of a contract, pays to a person (referred to in this section as the "recipient") an amount (referred to in this section as the "specified amount") that may reasonably be considered to be received by the recipient as a reimbursement of, or a contribution or an allowance in respect of, an amount (referred to in this section as the "original amount")

(i)  that was described by paragraph 18(1)(m) and was paid or payable by the recipient, or

(ii)  that was, in respect of the recipient, an amount described by paragraph 12(1)(o);

(b)  the original amount is paid or became payable or receivable in a taxation year or fiscal period of the recipient that begins before 2007; and

(c)  the taxpayer is resident in Canada or carries on business in Canada when the specified amount is paid.

Rules relating to time of payment

(2)  If the specified amount is paid in a taxation year of the taxpayer that begins before 2008, the eligible portion of the specified amount, referred to in subsection (11), is deemed to be a payment described by paragraph 18(1)(m). If, however, the specified amount is paid in a taxation year of the taxpayer that begins after 2007, the specified amount is deemed, for the purpose of applying this section to the taxpayer, to be nil.

Applying paragraph 18(1)(m)

(3)  For the purpose of applying paragraph 18(1)(m) for the taxpayer's taxation year in which the specified amount was paid, the amount to which that paragraph applies is to be determined for that taxation year

(a)  if the taxpayer was in existence at the time the original amount became receivable by a person referred to in subparagraph 12(1)(o)(i) or became payable to a person referred to in subparagraph 18(1)(m)(i), as if the specified amount were paid by the taxpayer at that time; and

(b)  in any other case, as if

(i)  the taxpayer were in existence and had a calendar taxation year at the time the original amount became receivable by a person referred to in subparagraph 12(1)(o)(i) or became payable to a person referred to in subparagraph 18(1)(m)(i), and

(ii)  the specified amount were paid by the taxpayer at that time.

Exception for certain partnership reimbursements

(4)  Subsection (3) does not apply to a specified amount paid by a taxpayer if

(a)  the recipient is a partnership;

(b)  the original amount became receivable by a person referred to in subparagraph 12(1)(o)(i) or became payable to a person referred to in subparagraph 18(1)(m)(i), in a particular fiscal period of the partnership;

(c)  the taxpayer is a member of the partnership at the end of the particular fiscal period; and

(d)  the taxpayer paid the specified amount before the end of the taxation year of the taxpayer in which that particular fiscal period ends.

Specified amount deemed to be paid at end of taxation year

(5)  A specified amount paid by the taxpayer to a partnership is deemed to have been paid on the last day of a particular taxation year of the taxpayer, and not at the time it was paid, if

(a)  the taxpayer paid an amount to the partnership in the particular taxation year (referred to in this subsection as the "initial payment");

(b)  the initial payment was paid before September 17, 2004;

(c)  the initial payment is an amount to which subsection (3) did not apply because of subsection (4);

(d)  the taxpayer's share of the original amount in respect of the initial payment is greater than the initial payment;

(e)  the specified amount is equal to or less than the difference between the taxpayer's share of the original amount in respect of the initial payment and the initial payment;

(f)  the taxpayer elects in the taxpayer's return of income for the taxpayer's taxation year that includes the time at which the specified amount would, if this Act were read without reference to this subsection, have been paid, to have this subsection apply to the specified amount; and

(g)  the specified amount is paid before 2006.

Inclusion in recipient's income

(6)  The recipient shall include in computing the recipient's income for the taxation year or fiscal period in which the original amount was paid or became payable or receivable, the amount, if any, by which the eligible portion of the specified amount exceeds the portion of the original amount that was included in computing the income of the recipient for the taxation year or fiscal period because of paragraph 12(1)(o) or that was not deductible in computing the income of the recipient for the taxation year or fiscal period because of paragraph 18(1)(m).

Interpretation - portion of the original amount

(7)  For the purpose of subsection (6), the portion of the original amount that was included in computing the income of the recipient or that was not deductible in computing the income of the recipient is the amount that would be included in computing the income of the recipient under paragraph 12(1)(o) or that would not be deductible in computing the income of the recipient under paragraph 18(1)(m), if the original amount were equal to the eligible portion of the specified amount.

Inclusion in recipient's income

(8)  The recipient shall include, in computing the recipient's income for its taxation year or fiscal period in which the original amount was paid or became payable or receivable, the amount, if any, by which the specified amount exceeds the eligible portion of the specified amount.

Deduction by taxpayer

(9)  Subject to paragraphs 18(1)(a) and (b), the taxpayer may deduct in computing the taxpayer's income for the taxpayer's taxation year in which the specified amount was paid, the amount, if any, by which the specified amount exceeds the eligible portion of the specified amount.

Specified amount deemed not to be payable or receivable

(10)  Except for the purposes of this section and subparagraph 53(1)(e)(iv.1),

(a)  the taxpayer is deemed not to have paid, and not to have been obligated to pay, the specified amount; and

(b)  the recipient is deemed not to have received, and not to have been entitled to receive, the specified amount.

Eligible portion of a specified amount

(11)  The eligible portion of a specified amount is

(a)  an amount equal to the specified amount if

(i)  the specified amount was paid before September 17, 2004,

(ii)  the original amount is a tax imposed under a provincial law on the production of

(A)  petroleum, natural gas or related hydrocarbons from a natural accumulation of petroleum or natural gas (other than a mineral resource) located in Canada, or from an oil or gas well located in Canada if the petroleum, natural gas or related hydrocarbons are not, before extraction, owned by the Crown in right of Canada or a province, or

(B)  metals, minerals or coal from a mineral resource located in Canada if the metals, minerals or coal are not, before extraction, owned by the Crown in right of Canada or a province,

(iii)  the specified amount does not exceed the taxpayer's share of the original amount, or

(iv)  the original amount is a prescribed amount; and

(b)  the taxpayer's share of the original amount, in any other case.

Taxpayer's share of original amount

(12)  A taxpayer's share of an original amount in respect of a specified amount paid by the taxpayer to a recipient in respect of a property is the amount that may reasonably be considered to be the taxpayer's share of the total of all amounts described in paragraph 12(1)(o) or 18(1)(m) in respect of the property, which share may not exceed the total of

(a)  that proportion of the total of all amounts described in paragraph 12(1)(o) or 18(1)(m) in respect of the property that the taxpayer's share of production from the property payable to the taxpayer as a royalty, which royalty is computed without reference to the costs of exploration or production, is of the total production from the property, and

(b)  that proportion of the total of all amounts described in paragraph 12(1)(o) or 18(1)(m) in respect of the property (other than those amounts which the recipient has received or is entitled to receive as a reimbursement, contribution or allowance in respect of a royalty described in paragraph (a)) that the taxpayer's share of the income from the property is of the total income from the property.

Reduction in original amount for Part XII of the regulations

(13)  For the purpose of applying Part XII of the Income Tax Regulations, an original amount in respect of which a specified amount is received is deemed, for the taxation year in which the original amount was paid or became payable or receivable, not to include an amount equal to the eligible portion of the specified amount.

(2)  Subsection (1) applies in respect of specified amounts paid after 2001.

(3)  Where a person is liable to an amount of tax under Part I of the Act for a taxation year that exceeds the amount to which the person would be liable if section 80.2 of the Act applied as it read on December 31, 2001, the person is deemed, for the purpose of determining any interest or penalty payable by that person, to have paid the excess on that person's balance-due date, if

(a)  the person's balance-due date for the taxation year was before September 17, 2004; and

(b)  the excess was paid to the Receiver General before March 2005.

(4)  Notwithstanding subsections 152(4) to (5) of the Act, all assessments, determinations, and redeterminations may be made as necessary to give effect to subsections (1) to (3).

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

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

(2)  Subsection (1) applies

(a)  to amounts paid in respect of arrangements made after 2001, except that, in its application to amounts paid in respect of an arrangement made before December 21, 2002, clause 82(1)(a)(ii)(B) of the Act, as enacted by subsection (1), is to be read without reference to the expression "or is deemed by paragraph 260(12)(b) to have been" unless an election referred to in paragraph 187(25)(b) of this Act has been made in respect of the arrangement; and

(b)  to amounts paid in respect of arrangements made after November 2, 1998 and before 2002, if the parties to the arrangement have made the election referred to in paragraph 187(25)(b) of this Act, except that in its application to those arrangements made before 2002, the reference to "subsection 260(5.1)" in clause 82(1)(a)(ii)(B) of the Act, as enacted by subsection (1), is to be read as a reference to "subsection 260(5)".

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

Deemed dividend on reduction of paid-up capital

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

(a)  the amount may reasonably be considered to be derived from proceeds of disposition realized by the public corporation, or by a person or partnership in which the public corporation had a direct or indirect interest at the time that the proceeds were realized, from a transaction that occurred

(i)  outside the ordinary course of the business of the corporation, or of the person or partnership that realized the proceeds, and

(ii)  within the period that commenced 24 months before the payment; and

(b)  no amount that may reasonably be considered to be derived from those proceeds was paid by the public corporation on a previous reduction of the paid-up capital in respect of any class of shares of its capital stock.

(2)  Subsection (1) applies to amounts paid after 1996, except that in respect of those amounts paid before February 27, 2004, subsection 84(4.1) of the Act, as enacted by subsection (1), is to be read as follows:

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

86.  (1)  Paragraph 85(1)(d.1) of the Act is replaced by the following:

(d.1)  for the purpose of determining after the disposition time the amount to be included under paragraph 14(1)(b) in computing the corporation's income, there shall be added to the amount otherwise determined for C in that paragraph the amount determined by the formula

1/2 × [(A × B/C) - 2(D - E)] + F + G

where

A is the amount, if any, determined for Q in the definition "cumulative eligible capital" in subsection 14(5) in respect of the taxpayer's business immediately before the time of the disposition,

B is the fair market value immediately before the disposition time of the eligible capital property disposed of to the corporation by the taxpayer,

C is the total of the fair market value immediately before the disposition time of all eligible capital property of the taxpayer in respect of the business and each amount that was described in B in respect of an earlier disposition made after the taxpayer's adjustment time (within the meaning in subsection 14(5)),

D is the amount, if any, that would be included under subsection 14(1) in computing the taxpayer's income as a result of the disposition if the values determined for C and D in paragraph 14(1)(b) were zero,

E is the amount, if any, that would be included under subsection 14(1) in computing the taxpayer's income as a result of the disposition if the value determined for D in paragraph 14(1)(b) were zero,

F is the total of all amounts, each of which is an amount determined under this paragraph as it applied to the taxpayer in respect of a disposition to the corporation on or before the disposition time, and

G is the total of all amounts, each of which is an amount determined under
subparagraph 88(1)(c.1)(ii) as it applied to the taxpayer in respect of a winding-up before the disposition time;

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

(d.11)  for the purpose of determining after the time of the disposition (referred to in this paragraph and in paragraphs (d.1) and (d.12) as the "disposition time") the amount to be included under paragraph 14(1)(a) or (b) in computing the corporation's income, there shall be added to the amount otherwise determined for each of A and F in the definition "cumulative eligible capital" in subsection 14(5) the amount, if any, determined by the formula

(A × B/C) + D + E

where

A is the amount, if any, that would be determined for F in that definition in respect of the taxpayer's business at the beginning of the taxpayer's following taxation year if the taxpayer's taxation year that includes the disposition time had ended immediately after the disposition time and if, in respect of the disposition, this Act were read without reference to paragraph (d.12),

B is the fair market value immediately before the disposition time of the eligible capital property disposed of to the corporation by the taxpayer,

C is the fair market value immediately before the disposition time of all eligible capital property of the taxpayer in respect of the business and each amount that was described in B in respect of an earlier disposition made after the taxpayer's adjustment time (within the meaning in subsection 14(5)),

D is the total of all amounts, each of which is an amount determined under this paragraph as it applied to the taxpayer in respect of a disposition to the corporation on or before the disposition time, and

E is the total of all amounts, each of which is an amount determined under
subparagraph 88(1)(c.1)(i) as it applied to the taxpayer in respect of a winding-up before the disposition time;

(d.12)  for the purpose of determining after the disposition time the amount to be included under paragraph 14(1)(a) or (b) in computing the taxpayer's income, the amount, if any, determined by the formula in paragraph (d.11) in respect of the disposition is to be deducted from each of the amounts otherwise determined

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

(ii)  for the description of B in paragraph 14(1)(b);

(3)  Subsection (1) applies to taxation years of a corporation that end after December 20, 2002.

(4)  Subsection (2) applies in respect of the disposition of an eligible capital property by a taxpayer to a corporation unless

(a)  the disposition by the taxpayer occurred before December 21, 2002; and

(b)  the corporation disposed of the eligible capital property, before ANNOUNCEMENT DATE and in a taxation year of the corporation ending after February 27, 2000, to a person with whom the corporation did not deal at arm's length at the time of that disposition by the corporation.

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

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

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

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

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

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

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

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

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

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

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

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

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

Patronage dividends

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

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

Part I.3 and Part VI tax

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

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

Subsection 13(4.2) election

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

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

(m.2)  for the purpose of computing the fair market value of property under subsection 248(35), the new corporation is deemed to be the same corporation as, and a continuation of, each predecessor corporation;

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

Employees profit sharing plan

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

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

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

Quebec credit unions

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

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

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

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

(c)  for the consideration under the agreement

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

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

(d)  the new corporation

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

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

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

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

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

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

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

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

(12)  Subsection (4) applies in respect of gifts of property made after 6:00 p.m. (Eastern Standard Time) on December 4, 2003.

(13)  Subsection (5) applies to amalgamations that occur, and to windings-up that begin, after 1994.

(14)  Subsection (6) applies to amalgamations that occur, and to windings-up that begin, after March 20, 2003.

(15)  Subsection (7) applies to amalgamations that occur after June, 2001.

(16)  Subsections (8) and (9) apply to amalgamations that occur after 1997.

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

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

(i)  there shall be added to the amount otherwise determined for each of the descriptions of A and F in the definition "cumulative eligible capital" in subsection 14(5), the total of all amounts, each of which is the amount, if any,

(A)  determined for the description of F in that definition in respect of that business immediately before the winding up,

(B)  determined under this subparagraph as it applied to the subsidiary in respect of a
winding-up before that time, or

(C)  determined under paragraph 85(1)(d.11) as it applied to the subsidiary in respect of a disposition to the subsidiary before that time, and

(ii)  there shall be added to the amount determined for the description of C in the formula in paragraph 14(1)(b), the total of all amounts, each of which is an amount that is

(A)  one-half of the amount, if any, determined for the description of Q in that definition in respect of that business immediately before the winding up,

(B)  determined under this subparagraph as it applied to the subsidiary in respect of a
winding-up before that time, or

(C)  determined under paragraph 85(1)(d.1) as it applied to the subsidiary in respect of a disposition to the subsidiary before that time;

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

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

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

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

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

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

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

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

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

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

(6)  Subsection (1) applies in respect of the disposition of an eligible capital property by a subsidiary to a parent unless

(a)  the disposition by the subsidiary occurred before December 21, 2002; and

(b)  the parent disposed of the eligible capital property, before ANNOUNCEMENT DATE and in a taxation year of the parent ending after February 27, 2000, to a person with whom the parent did not deal at arm's length at the time of that disposition by the parent.

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

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

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