Income Tax Amendments Act, 2000

Link to law: http://laws-lois.justice.gc.ca/eng/AnnualStatutes/2001_17/FullText.html

Income Tax Amendments Act, 2000

S.C. 2001, c. 17

Assented to 2001-06-14

An Act to amend the Income Tax Act, the Income Tax Application Rules, certain Acts related to the Income Tax Act, the Canada Pension Plan, the Customs Act, the Excise Tax Act, the Modernization of Benefits and Obligations Act and another Act related to the Excise Tax Act

SUMMARY

These amendments implement income tax measures announced in the February 2000 budget and the October 2000 Economic Statement and Budget Update, as well as a variety of amendments to the Income Tax Act and related statutes most of which were originally included in Bill C-43 (first reading in September 2000) or otherwise previously announced. The measures of greater significance are summarized below.

(1) Government’s Five-Year Tax Reduction Plan: provides $100 billion in tax relief by 2004-2005, reducing the federal income tax paid by individuals resident in Canada by 21% on average. Families with children will receive an even larger tax cut — about 27% on average. Measures included will

(a) reduce tax rates at all income levels;

(b) eliminate the 5% deficit reduction surtax;

(c) increase support for families with children through the Canada Child Tax Benefit;

(d) reduce the capital gains inclusion rate;

(e) provide a tax-deferred capital gains rollover for investments in shares of certain small- and medium-sized active business corporations;

(f) provide a tax-deferred rollover for shares received on certain foreign spin-offs;

(g) reduce the 28% general corporate tax rate to 21%; and

(h) defer the taxation of certain stock option benefits, increase the stock option deduction and allow an additional deduction for certain stock option shares donated to charity.

(2) Child Care Expense Deduction: increases the maximum annual amount deductible for child care expenses for each eligible child in respect of whom the disability tax credit may be claimed to $10,000 from $7,000.

(3) Disability Tax Credit: extends the disability tax credit to individuals who, but for extensive therapy, would be markedly restricted in their activities of daily living; provides a supplement for disabled children under the age of 18 years; extends the transferability of the credit to most relatives of a disabled person; and, starting in 2001, increases the amounts on which the credit and the new supplement are calculated to $6,000 and $3,500 from $4,293 and $2,941, respectively.

(4) Caregiver and Infirm Dependant Tax Credits: increases the amount on which each of these credits is calculated to $3,500 from $2,446.

(5) Medical Expense Tax Credit: includes reasonable incremental costs relating to the construction of the principal place of residence of an individual who lacks normal physical development or has a severe and prolonged ability impairment to enable the individual to gain access to, or to be mobile within, the residence.

(6) Donations of Ecological Gifts: halves the normal capital gains inclusion for an ecological gift the value of which has been certified by the Minister of the Environment; and clarifies rules for calculating any capital gain or loss realized as a result of such a gift.

(7) Scholarships, Fellowships and Bursaries: increases by $2,500 the exemption for scholarships, fellowships and bursaries received by a taxpayer in connection with the taxpayer’s enrolment in a program in respect of which the taxpayer may claim the education tax credit.

(8) Education Tax Credit: doubles the monthly amounts on which the credit allowed to full-time and part-time students is based to $400 and $120, respectively.

(9) Clergy Residence Deduction: provides clearer rules for determining the amount deductible in respect of a clergy’s residence.

(10) CPP/QPP Contributions on Self-Employed Earnings: introduces a deduction from business income for one-half of CPP/QPP contributions on self-employed earnings, with the other half of the contributions remaining eligible for the CPP/QPP tax credit.

(11) Thin Capitalization: amends the provisions to have the debt-to-equity ratio calculated on an averaged basis, reduces the acceptable debt-to-equity ratio to 2:1 from 3:1 and repeals the exemption for manufacturers of aircraft and aircraft components.

(12) Non-Resident-Owned Investment Corporations: phases out, over a three-year period, the special income tax regime for this type of corporation.

(13) Weak Currency Debt: limits the deductibility of interest expenses and adjusts foreign exchange gains and losses in respect of weak currency debts and associated hedging transactions.

(14) Government Assistance — SR & ED: categorizes as government assistance provincial deductions for SR & ED that exceed the amount of the SR & ED expenditures.

(15) Foreign Tax Credits — Oil and Gas Production Sharing Agreements: clarifies the eligibility for a business foreign tax credit of certain payments made by Canadian resident taxpayers to foreign governments on account of levies imposed in connection with production sharing agreements.

(16) Foreign Exploration and Development Expenses (FEDE): amends the rules to require that the FEDE of a claimant must relate to either foreign resource property acquired by the claimant or be made for the purpose of enhancing the value of foreign resource property owned, or to be owned, by the claimant; ensures appropriate treatment of FEDE in computing foreign tax credits, and imposes a 30% restriction for the annual deduction of new FEDE balances.

(17) Flow-Through Share Investment Tax Credit: introduces a temporary 15% investment tax credit for certain “grass roots” mineral exploration.

(18) Foreign Branch Banking: provides amendments to the Income Tax Act to accommodate branches of foreign banks operating in Canada.

(19) Capital Dividend Account: permits amounts distributed to a corporation from a trust in respect of capital gains or capital dividends realized or received by the trust to be included in the corporation’s capital dividend account.

(20) Taxpayer Migration: enhances Canada’s ability to tax the gains accrued by emigrants while they were resident in Canada.

(21) Trusts: addresses the tax treatment of property distributed from a Canadian trust to a non-resident beneficiary and introduces new measures dealing with the tax treatment of bare, protective and similar trusts as well as mutual fund trusts, health and welfare trusts and trusts governed by registered retirement savings plans and registered retirement income funds.

(22) Advertising Expenses: implements the income tax aspects of the June 1999 agreement between Canada and the United States concerning periodicals.

(23) Simultaneous Control: confirms that, in a chain of corporations, a corporation is controlled by its immediate parent even where the parent is itself controlled by a third corporation.

(24) Foreign Affiliates Held by Partnerships: ensures that Canadian corporations that are members of a partnership that holds shares of non-resident corporations are provided relief from double taxation on the income derived from those shares and receive the same tax treatment in respect of the disposition of those shares as if they held the shares directly.

(25) Foreign Affiliate Losses: provides that foreign accrual property losses of a foreign affiliate may be carried back three years and forward seven years for the purpose of determining the affiliate’s foreign accrual property income for a particular taxation year.

(26) Capital Tax: extends to the end of 2000 the additional capital tax on life insurance corporations.

(27) Stop-Loss Rule: extends the rule that suspends recognition of a loss when a corporation, trust or partnership transfers depreciable property to transferors who are affiliated persons (including individuals).

(28) Types of Property: amends the corporate divisive reorganization rules to no longer require that each transferee corporation receive its pro-rata share of each type of property in the case of certain public corporate divisive reorganizations.

(29) Replacement Property Rules: provides that the replacement property rules do not apply to shares of the capital stock of corporations.

(30) Limited Liability Partnerships: ensures that a member of a “limited liability partnership” (under provincial law) is not automatically a “limited partner” for the purposes of the Income Tax Act.

(31) Non-Resident Film and Video Actors: applies a new 23% withholding tax on payments to non-resident film and video actors and their corporations, with an option to have the actor and corporation pay regular Part I tax on the net earnings instead.

Her Majesty, by and with the advice and consent of the Senate and House of Commons of Canada, enacts as follows:

SHORT TITLE

Marginal note:Short title

1. This Act may be cited as the Income Tax Amendments Act, 2000.

PART 1R.S., c. 1 (5th Supp.) INCOME TAX ACT

2. (1) The portion of subsection 7(1) of the Income Tax Act before paragraph (a) is replaced by the following:

Marginal note:Agreement to issue securities to employees

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

(2) Subsection 7(1.3) of the Act is replaced by the following:

Marginal note:Order of disposition of securities

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

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

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

Marginal note:Disposition of newly-acquired security

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

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

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

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

(3) Paragraph 7(1.4)(a) of the Act is replaced by the following:

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

(4) Paragraph 7(1.4)(d) of the Act is replaced by the following:

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

(5) Subsection 7(1.5) of the Act is replaced by the following:

Marginal note:Rules where securities exchanged

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

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

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

(i) the particular qualifying person,

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

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

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

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

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

the following rules apply:

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

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

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

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

Marginal note:Emigrant

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

Marginal note:Rights ceasing to be exercisable

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

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

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

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

exceeds

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

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

Marginal note:Securities held by trustee

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

(7) The portion of paragraph 7(6)(a) of the Act before subparagraph (i) is replaced by the following:

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

(8) The portion of subsection 7(7) of the Act before the definition “qualifying person” is replaced by the following:

Marginal note:Definitions

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

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

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

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

(a) the acquisition is a qualifying acquisition; and

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

Meaning of “qualifying acquisition”

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

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

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

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

(i) the particular qualifying person,

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

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

(d) where the security is a share,

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

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

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

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

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

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

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

(i) $100,000

exceeds

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

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

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

Meaning of “specified value”

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

A / B

where


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


is

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

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

Marginal note:Identical options — order of exercise

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

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

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

Marginal note:Revoked election

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

Marginal note:Deferral deemed valid

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

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

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

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

Marginal note:Withholding

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

Marginal note:Prescribed form for deferral

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

(10) Subsections (1), (4), (6), (7) and (9) apply to the 2000 and subsequent taxation years except that

(a) a share acquired in 2000 under an agreement referred to in subsection 7(1) of the Act, as enacted by subsection (1), is deemed to comply with the requirements of paragraph 7(9)(d) of the Act, as enacted by subsection (9), if, at all times during the period beginning at the time the agreement was made (determined without reference to subsection 7(1.4) of the Act, as enacted by subsections (3) and (4)) and ending at the time the share was acquired, the class of shares to which the share belongs was listed on a prescribed stock exchange;

(b) an election under subsection 7(10) of the Act, as enacted by subsection (9), to have subsection 7(8) of the Act, as enacted by subsection (9), apply in respect of a security acquired in 2000 is deemed to have been filed in a timely manner if it is filed on or before the day that is 60 days after the day on which this Act receives royal assent; and

(c) a written request under subsection 7(13) of the Act, as enacted by subsection (9), to revoke an election in respect of a security acquired in 2000 is deemed to have been filed in a timely manner if it is filed on or before the day that is 60 days after the day on which this Act receives royal assent.

(11) Subsection (2) applies to securities acquired, but not disposed of, before February 28, 2000 and to securities acquired after February 27, 2000.

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

(13) Subsection 7(1.5) of the Act, as enacted by subsection (5), applies to dispositions and exchanges of securities by a taxpayer that occur after February 27, 2000.

(14) Subsection 7(1.6) of the Act, as enacted by subsection (5), applies after 1992.

(15) Subsection 7(1.7) of the Act, as enacted by subsection (5), applies to amounts received on or after March 16, 2001, other than amounts received on or after that day

(a) pursuant to an agreement in writing made before that day in settlement of claims arising as a result of a cessation occurring before that day; or

(b) pursuant to an order or judgment issued before that day in respect of claims arising as a result of a cessation occurring before that day.

(16) Subsection (8) applies after 1997, except that

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

(b) before 2000, the portion of subsection 7(7) of the Act, as enacted by subsection (8), before the definition “qualifying person” shall 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) and (1.6).

3. (1) Paragraph 8(1)(a) of the Act is repealed.

(2) Paragraph 8(1)(c) of the Act is replaced by the following:

Marginal note:Clergy residence

(c) where, in the year, the taxpayer

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

(ii) is

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

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

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

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

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

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

(A) the greater of

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

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

(B) the amount, if any, by which

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

exceeds

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

(3) Subsection 8(10) of the Act is replaced by the following:

Marginal note:Certificate of employer

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

(4) Subsections (1) and (3) apply to the 1998 and subsequent taxation years except that in its application to the 1998 to 2000 taxation years the reference to “paragraph (1)(c), (f)” in subsection 8(10), as enacted by subsection (3), shall be read as a reference to “paragraph (1)(f)”.

(5) Subsection (2) applies to the 2001 and subsequent taxation years.

4. (1) Section 10 of the Act is amended by adding the following after subsection (11):

Marginal note:Removing property from inventory

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

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

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

Marginal note:Adding property to inventory

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

Marginal note:Work in progress

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

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

5. (1) Paragraph 12(1)(c) of the Act is replaced by the following:

Marginal note:Interest

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

(2) Paragraph 12(1)(i.1) of the Act is replaced by the following:

Marginal note:Bad debts recovered

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

A × B / C

where


is 1/2 of the amount so received,


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


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

(3) Subsection 12(1) of the Act is amended by adding the following after paragraph (o):

Marginal note:Foreign oil and gas production taxes

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

(4) Subsection (1) applies to taxation years that end after September 1997.

(5) Subsection (2) applies in respect of taxation years that end after February 27, 2000 except that, for taxation years that ended after February 27, 2000 and before October 18, 2000, the reference to the fraction “1/2” in the description of A in paragraph 12(1)(i.1) of the Act, as enacted by subsection (2), shall be read as a reference to the fraction “2/3”.

(6) Subsection (3) applies to taxation years of a taxpayer that begin after the earlier of

(a) December 31, 1999; and

(b) where, for the purposes of subsection 117(26), a date is designated in writing by the taxpayer and the designation 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 receives royal assent, the later of

(i) the date so designated, and

(ii) December 31, 1994.

6. (1) Clause 13(7)(b)(ii)(B) of the Act is amended by replacing the reference to the fraction “3/4” with a reference to the fraction “1/2” and by replacing the reference to the expression “4/3 of” with a reference to the word “twice”.

(2) Clause 13(7)(d)(i)(B) of the Act is amended by replacing the reference to the fraction “3/4” with a reference to the fraction “1/2” and by replacing the reference to the expression “4/3 of” with a reference to the word “twice”.

(3) Paragraph 13(7)(e) of the Act is amended by replacing the references to the fraction “3/4” with references to the fraction “1/2” and by replacing the reference to the expression “4/3 of” with a reference to the word “twice”.

(4) Subparagraph 13(7)(f)(ii) of the Act is amended by replacing the reference to the fraction “3/4” with a reference to the fraction “1/2”.

(5) The definition “disposition of property” in subsection 13(21) of the Act is repealed.

(6) Subparagraph 13(21.1)(b)(ii) of the Act is amended by replacing the reference to the fraction “1/4” with a reference to the fraction “1/2”.

(7) Paragraph 13(21.2)(a) of the Act is replaced by the following:

(a) a person or partnership (in this subsection referred to as the “transferor”) disposes at a particular time (otherwise than in a disposition described in any of paragraphs (c) to (g) of the definition “superficial loss” in section 54) of a depreciable property of a particular prescribed class of the transferor,

(8) Subparagraph 13(21.2)(e)(ii) of the Act is replaced by the following:

(ii) where two or more properties of a prescribed class of the transferor are disposed of at the same time, subparagraph (i) applies as if each property so disposed of had been separately disposed of in the order designated by the transferor or, if the transferor does not designate an order, in the order designated by the Minister,

(9) Section 13 of the Act is amended by adding the following after subsection (33):

Marginal note:Deductible expenses

(34) Notwithstanding paragraph 1102(1)(a) of the Regulations, for taxation years that end after 1987 and before December 6, 1996, the classes of property prescribed for the purpose of paragraph 20(1)(a) are deemed to include property of a taxpayer that, if the Act were read without reference to sections 66 to 66.4, would be included in one of the classes.

(10) Subsections (1) and (2) apply to changes in use of property that occur in taxation years that end after February 27, 2000 except that, for changes in use of property that occur in a taxpayer’s taxation year that includes February 28, 2000 or October 17, 2000, or began after February 28, 2000 and ended before October 17, 2000, the references in clauses 13(7)(b)(ii)(B) and 13(7)(d)(i)(B) of the Act, as enacted by subsections (1) and (2), respectively, to the fraction “1/2” shall be read as references to the fraction in paragraph 38(a) of the Act, as enacted by subsection 22(1), that applies to the taxpayer for the year and the references to the word “twice” shall be read as references to the expression “the fraction that is the reciprocal of the fraction in paragraph 38(a), as enacted by subsection 22(1) of the Income Tax Amendments Act, 2000, that applies to the taxpayer for the year, multiplied by”.

(11) Subsection (3) applies to acquisitions of property that occur in taxation years that end after February 27, 2000 except that, for acquisitions of property in a taxation year that includes February 28, 2000 or October 17, 2000, or began after February 28, 2000 and ended before October 17, 2000, of a person or partnership from whom the property was acquired, the references in paragraph 13(7)(e) of the Act, as enacted by subsection (3), to the fraction “1/2” shall be read as references to the fraction in paragraph 38(a) of the Act, as enacted by subsection 22(1), that applies to the person or partnership from whom the taxpayer acquired the property for the year in which the person or partnership disposed of the property, and the references to the word “twice” shall be read as references to the expression “the fraction that is the reciprocal of the fraction in paragraph 38(a), as enacted by subsection 22(1) of the Income Tax Amendments Act, 2000, that applies to the person or partnership from whom the taxpayer acquired the property for the year in which the person or partnership disposed of the property, multiplied by”.

(12) Subsection (4) applies to acquisitions of property that occur in taxation years that end after February 27, 2000 except that, for acquisitions of property that occur in a taxpayer’s taxation year that includes February 28, 2000 or October 17, 2000, or began after February 28, 2000 and ended before October 17, 2000, the reference in subparagraph 13(7)(f)(ii) of the Act, as enacted by subsection (4), to the fraction “1/2” shall be read as a reference to the fraction in paragraph 38(a) of the Act, as enacted by subsection 22(1), that applies to the taxpayer for the year.

(13) Subsection (5) applies to transactions and events that occur after December 23, 1998.

(14) Subsection (6) applies to taxation years that end after February 27, 2000 except that, for a taxpayer’s taxation year that includes February 28, 2000 or October 17, 2000, or began after February 28, 2000 and ended before October 17, 2000, the reference in subparagraph 13(21.1)(b)(ii) of the Act, as enacted by subsection (6), to the fraction “1/2” shall be read as a reference to the fraction determined when the fraction in paragraph 38(a) of the Act, as enacted by subsection 22(1), that applies to the taxpayer for the year is subtracted from 1.

(15) Subsections (7) and (8) apply after November 1999 except that, if an individual (other than a trust) 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 taxation year in which this Act receives royal assent, subsection (7) does not apply in respect of the disposition of a property by the individual before July 2000

(a) to a person who was obliged on November 30, 1999 to acquire the property pursuant to the terms of an agreement in writing made on or before that day; or

(b) in a transaction, or as part of a series of transactions, the arrangements for which, evidenced in writing, were substantially advanced before December 1999, other than a transaction or series of transactions a main purpose of which can reasonably be considered to have been to enable an unrelated person to obtain the benefit of

(i) any deduction in computing income, taxable income, taxable income earned in Canada or tax payable under the Act, or

(ii) any balance of undeducted outlays, expenses or other amounts.

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

Marginal note:Eligible capital property — inclusion in income from business

14. (1) Where, at the end of a taxation year, the total of all amounts each of which is an amount determined, in respect of a business of a taxpayer, for E in the definition “cumulative eligible capital” in subsection (5) (in this section referred to as an “eligible capital amount”) or for F in that definition exceeds the total of all amounts determined for A to D in that definition in respect of the business (which excess is in this subsection referred to as “the excess”), there shall be included in computing the taxpayer’s income from the business for the year the total of

(a) the amount, if any, that is the lesser of

(i) the excess, and

(ii) the amount determined for F in the definition “cumulative eligible capital” in subsection (5) at the end of the year in respect of the business, and

(b) the amount, if any, determined by the formula

2/3 × (A – B – C – D)

where


is the excess,


is the amount determined for F in the definition “cumulative eligible capital” in subsection (5) at the end of the year in respect of the business,


is 1/2 of the amount determined for Q in the definition “cumulative eligible capital” in subsection (5) at the end of the year in respect of the business, and


is the amount claimed by the taxpayer, not exceeding the taxpayer’s exempt gains balance for the year in respect of the business.

Marginal note:Election re capital gain

(1.01) Where, at any time in a taxation year, a taxpayer disposes of an eligible capital property (other than goodwill) in respect of a business, the cost of the property to the taxpayer can be determined, the proceeds of the disposition (in this subsection referred to as the “actual proceeds”) exceed that cost, the taxpayer’s exempt gains balance in respect of the business for the year is nil and the taxpayer so elects under this subsection in the taxpayer’s return of income for the year,

(a) for the purposes of subsection (5), the proceeds of disposition of the property are deemed to be equal to that cost;

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

(c) where the eligible capital property is at that time a qualified farm property (within the meaning assigned by subsection 110.6(1)) of the taxpayer, the capital property deemed by paragraph (b) to have been disposed of by the taxpayer is deemed to have been at that time a qualified farm property of the taxpayer.

(2) The portion of subsection 14(1.1) of the Act before the description of B in paragraph (b) is replaced by the following:

Marginal note:Deemed taxable capital gain

(1.1) For the purposes of section 110.6 and paragraph 3(b) as it applies for the purposes of that section, an amount included under paragraph (1)(b) in computing a taxpayer’s income for a particular taxation year from a business is deemed to be a taxable capital gain of the taxpayer for the year from the disposition in the year of qualified farm property to the extent of the lesser of

(a) the amount included under paragraph (1)(b) in computing the taxpayer’s income for the particular year from the business, and

(b) the amount determined by the formula

A – B

where


is the amount by which the total of

(i) 3/4 of the total of all amounts each of which is the taxpayer’s proceeds from a disposition in a preceding taxation year that began after 1987 and ended before February 28, 2000 of eligible capital property in respect of the business that, at the time of the disposition, was a qualified farm property (within the meaning assigned by subsection 110.6(1)) of the taxpayer,

(ii) 2/3 of the total of all amounts each of which is the taxpayer’s proceeds from a disposition in the particular year or a preceding taxation year that ended after February 27, 2000 and before October 18, 2000 of eligible capital property in respect of the business that, at the time of the disposition, was a qualified farm property (within the meaning assigned by subsection 110.6(1)) of the taxpayer, and

(iii) 1/2 of the total of all amounts each of which is the taxpayer’s proceeds from a disposition in the particular year or a preceding taxation year that ended after October 17, 2000 of eligible capital property in respect of the business that, at the time of the disposition, was a qualified farm property (within the meaning assigned by subsection 110.6(1)) of the taxpayer

exceeds the total of

(iv) 3/4 of the total of all amounts each of which is

(A) an eligible capital expenditure of the taxpayer in respect of the business that was made or incurred in respect of a qualified farm property disposed of by the taxpayer in a preceding taxation year that began after 1987 and ended before February 28, 2000, or

(B) an outlay or expense of the taxpayer that was not deductible in computing the taxpayer’s income and that was made or incurred for the purpose of making a disposition referred to in clause (A),

(v) 2/3 of the total of all amounts each of which is

(A) an eligible capital expenditure of the taxpayer in respect of the business that was made or incurred in respect of a qualified farm property disposed of by the taxpayer in the particular year or a preceding taxation year that ended after February 27, 2000 and before October 18, 2000, or

(B) an outlay or expense of the taxpayer that was not deductible in computing the taxpayer’s income and that was made or incurred for the purpose of making a disposition referred to in clause (A), and

(vi) 1/2 of the total of all amounts each of which is

(A) an eligible capital expenditure of the taxpayer in respect of the business that was made or incurred in respect of a qualified farm property disposed of by the taxpayer in the particular year or a preceding taxation year that ended after October 17, 2000, or

(B) an outlay or expense of the taxpayer that was not deductible in computing the taxpayer’s income and that was made or incurred for the purpose of making a disposition referred to in clause (A), and

(3) The portion of subsection 14(3) of the Act before paragraph (c) is replaced by the following:

Marginal note:Acquisition of eligible capital property

(3) Notwithstanding any other provision of this Act, where at any particular time a person or partnership (in this subsection referred to as the “taxpayer”) has, directly or indirectly, in any manner whatever, acquired an eligible capital property in respect of a business from a person or partnership with which the taxpayer did not deal at arm’s length (in this subsection referred to as the “transferor”) and the property was an eligible capital property of the transferor (other than property acquired by the taxpayer as a consequence of the death of the transferor), the eligible capital expenditure of the taxpayer in respect of the business is, in respect of that acquisition, deemed to be equal to 4/3 of the amount, if any, by which

(a) the amount determined for E in the definition “cumulative eligible capital” in subsection (5) in respect of the disposition of the property by the transferor

exceeds the total of

(b) the total of all amounts that can reasonably be considered to have been claimed as deductions under section 110.6 for taxation years that ended before February 28, 2000 by any person with whom the taxpayer was not dealing at arm’s length in respect of the disposition of the property by the transferor, or any other disposition of the property before the particular time,

(b.1) 9/8 of the total of all amounts that can reasonably be considered to have been claimed as deductions under section 110.6 for taxation years that ended after February 27, 2000 and before October 18, 2000 by any person with whom the taxpayer was not dealing at arm’s length in respect of the disposition of the property by the transferor, or any other disposition of the property before the particular time, and

(b.2) 3/2 of the total of all amounts that can reasonably be considered to have been claimed as deductions under section 110.6 for taxation years that end after October 17, 2000 by any person with whom the taxpayer was not dealing at arm’s length in respect of the disposition of the property by the transferor, or any other disposition of the property before the particular time,

except that, where the taxpayer disposes of the property after the particular time, the amount of the eligible capital expenditure deemed by this subsection to be made by the taxpayer in respect of the property shall be determined at any time after the disposition as if the total of the amounts determined under paragraphs (b), (b.1) and (b.2) in respect of the disposition were the lesser of

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


is the total of

(a) 3/2 of all amounts included under paragraph (1)(b) in computing the taxpayer’s income from the business for taxation years that ended before that time and after October 17, 2000,

(b) 9/8 of all amounts included under paragraph (1)(b) in computing the taxpayer’s income from the business for taxation years that ended

(i) before that time, and

(ii) after February 27, 2000 and before October 18, 2000,

(c) all amounts included under paragraph (1)(b) in computing the taxpayer’s income from the business for taxation years that ended

(i) before the earlier of that time and February 28, 2000, and

(ii) after the taxpayer’s adjustment time,

(d) all amounts each of which is the amount that would have been included under subparagraph (1)(a)(v) (as that subparagraph applied for taxation years that ended before February 28, 2000) in computing the taxpayer’s income from the business, if the amount determined for D in that subparagraph for the year were nil, for taxation years that ended

(i) before the earlier of that time and February 28, 2000, and

(ii) after February 22, 1994, and

(e) all taxable capital gains included, because of the application of subparagraph (1)(a)(v) (as that subparagraph applied for taxation years that ended before February 28, 2000) to the taxpayer in respect of the business, in computing the taxpayer’s income for taxation years that began before February 23, 1994,

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


is the total of all amounts included, in computing the taxpayer’s income from the business for taxation years that ended before that time and after the taxpayer’s adjustment time, under subparagraph (1)(a)(iv) in respect of taxation years that ended before February 28, 2000 and under paragraph (1)(a) in respect of taxation years that end after February 27, 2000;

(6) The description of B in the definition “exempt gains balance” in subsection 14(5) of the Act is replaced by the following:


is the total of all amounts each of which is the amount determined for D in subparagraph (1)(a)(v) in respect of the business for a preceding taxation year that ended before February 28, 2000 or the amount determined for D in paragraph (1)(b) for a preceding taxation year that ended after February 27, 2000.

(7) Section 14 of the Act is amended by adding the following after subsection (13):

Marginal note:Ceasing to use property in Canadian business

(14) If at a particular time a non-resident taxpayer ceases to use, in connection with a business or part of a business carried on by the taxpayer in Canada immediately before the particular time, a property that was immediately before the particular time eligible capital property of the taxpayer (other than a property that was disposed of by the taxpayer at the particular time), the taxpayer is deemed to have disposed of the property immediately before the particular time for proceeds of disposition equal to the amount determined by the formula

A – B

where


is the fair market value of the property immediately before the particular time, and


is

(a) where at a previous time before the particular time the taxpayer ceased to use the property in connection with a business or part of a business carried on by the taxpayer outside Canada and began to use it in connection with a business or part of a business carried on by the taxpayer in Canada, the amount, if any, by which the fair market value of the property at the previous time exceeded its cost to the taxpayer at the previous time, and

(b) in any other case, nil.

Marginal note:Beginning to use property in Canadian business

(15) If at a particular time a non-resident taxpayer ceases to use, in connection with a business or part of a business carried on by the taxpayer outside Canada immediately before the particular time, and begins to use, in connection with a business or part of a business carried on by the taxpayer in Canada, a property that is an eligible capital property of the taxpayer, the taxpayer is deemed to have disposed of the property immediately before the particular time and to have reacquired the property at the particular time for consideration equal to the lesser of the cost to the taxpayer of the property immediately before the particular time and its fair market value immediately before the particular time.

(8) Subsections (1) to (6) apply to taxation years that end after February 27, 2000 except that, for taxation years that ended after February 27, 2000 and before October 18, 2000, the reference to the fraction “2/3” in the formula in paragraph 14(1)(b) of the Act, as enacted by subsection (1), shall be read as a reference to the fraction “8/9”.

(9) Subsection (7) applies after June 27, 1999 in respect of an authorized foreign bank, and after August 8, 2000 in any other case.

8. (1) Section 17 of the Act is amended by adding the following after subsection (11):

Marginal note:Determination of whether persons related

(11.1) For the purposes of this section, in determining whether persons are related to each other at any time, any rights referred to in subparagraph 251(5)(b)(i) that exist at that time are deemed not to exist at that time to the extent that the exercise of those rights is prohibited at that time under a law of the country under the law of which the corporation was formed or last continued and is governed, that restricts the foreign ownership or control of the corporation.

Marginal note:Back-to-back loans

(11.2) For the purposes of subsection (2) and paragraph (3)(b), where a non-resident person, or a partnership each member of which is non-resident, (in this subsection referred to as the “intermediate lender”) makes a loan to a non-resident person, or a partnership each member of which is non-resident, (in this subsection referred to as the “intended borrower”) because the intermediate lender received a loan from another non-resident person, or a partnership each member of which is non-resident, (in this subsection referred to as the “initial lender”)

(a) the loan made by the intermediate lender to the intended borrower is deemed to have been made by the initial lender to the intended borrower (to the extent of the lesser of the amount of the loan made by the initial lender to the intermediate lender and the amount of the loan made by the intermediate lender to the intended borrower) under the same terms and conditions and at the same time as it was made by the intermediate lender; and

(b) the loan made by the initial lender to the intermediate lender and the loan made by the intermediate lender to the intended borrower are deemed not to have been made to the extent of the amount of the loan deemed to have been made under paragraph (a).

Marginal note:Determination of whether persons related

(11.3) For the purpose of applying paragraph (3)(b) in respect of a corporation resident in Canada described in paragraph (2)(b), in determining whether persons described in subparagraph (3)(b)(i) are related to each other at any time, any rights referred to in paragraph 251(5)(b) that otherwise exist at that time are deemed not to exist at that time where, if the rights were exercised immediately before that time,

(a) all of those persons would at that time be controlled foreign affiliates of the corporation resident in Canada; and

(b) because of subsection (8), subsection (1) would not apply to the corporation resident in Canada in respect of the amount that would, but for this subsection, have been deemed to have been owing at that time to the corporation resident in Canada by the non-resident person described in subparagraph (3)(b)(i).

(2) The definition “exempt loan or transfer” in subsection 17(15) of the Act is replaced by the following:

“exempt loan or transfer”

« prêt ou transfert de biens exclu »

“exempt loan or transfer” means

(a) a loan made by a corporation resident in Canada where the interest rate charged on the loan is not less than the interest rate that a lender and a borrower would have been willing to agree to if they were dealing at arm’s length with each other at the time the loan was made;

(b) a transfer of property (other than a transfer of property made for the purpose of acquiring shares of the capital stock of a foreign affiliate of a corporation or a foreign affiliate of a person resident in Canada with whom the corporation was not dealing at arm’s length) or payment of an amount owing by a corporation resident in Canada pursuant to an agreement made on terms and conditions that persons who were dealing at arm’s length at the time the agreement was entered into would have been willing to agree to;

(c) a dividend paid by a corporation resident in Canada on shares of a class of its capital stock; and

(d) a payment made by a corporation resident in Canada on a reduction of the paid-up capital in respect of shares of a class of its capital stock (not exceeding the total amount of the reduction).

(3) Subsections (1) and (2) apply to taxation years that begin after February 23, 1998.

9. (1) Subsection 18(1) of the Act is amended by striking out the word “and” at the end of paragraph (t), by adding the word “and” at the end of paragraph (u) and by adding the following after paragraph (u):

Marginal note:Interest — authorized foreign bank

(v) where the taxpayer is an authorized foreign bank, an amount in respect of interest that would otherwise be deductible in computing the taxpayer’s income from a business carried on in Canada, except as provided in section 20.2.

(2) Paragraph 18(3.1)(b) of the Act is replaced by the following:

(b) the amount of such an outlay or expense shall, to the extent that it would otherwise be deductible in computing the taxpayer’s income for the year, be included in computing the cost or capital cost, as the case may be, of the building to the taxpayer, to the person with whom the taxpayer does not deal at arm’s length, to the corporation of which the taxpayer is a specified shareholder or to the partnership of which the taxpayer’s share of any income or loss is 10% or more, as the case may be.

(3) Paragraph 18(4)(a) of the Act is replaced by the following:

(a) the amount, if any, by which

(i) the average of all amounts each of which is, in respect of a calendar month that ends in the year, the greatest total amount at any time in the month of the corporation’s outstanding debts to specified non-residents,

exceeds

(ii) two times the total of

(A) the retained earnings of the corporation at the beginning of the year, except to the extent that those earnings include retained earnings of any other corporation,

(B) the average of all amounts each of which is the corporation’s contributed surplus at the beginning of a calendar month that ends in the year, to the extent that it was contributed by a specified non-resident shareholder of the corporation, and

(C) the average of all amounts each of which is the corporation’s paid-up capital at the beginning of a calendar month that ends in the year, excluding the paid-up capital in respect of shares of any class of the capital stock of the corporation owned by a person other than a specified non-resident shareholder of the corporation,

(4) Paragraph (b) of the definition “outstanding debts to specified non-residents” in subsection 18(5) of the Act is replaced by the following:

(b) an amount outstanding at the particular time as or on account of a debt or other obligation to pay an amount to

(i) a non-resident insurance corporation to the extent that the obligation was, for the non-resident insurance corporation’s taxation year that included the particular time, designated insurance property in respect of an insurance business carried on in Canada through a permanent establishment as defined by regulation, or

(ii) an authorized foreign bank, if the bank uses or holds the obligation at the particular time in its Canadian banking business;

(5) Subsection 18(8) of the Act is repealed.

(6) Subparagraph 18(9)(a)(ii) of the Act is replaced by the following:

(ii) as, on account of, in lieu of payment of or in satisfaction of, interest, taxes (other than taxes imposed on an insurer in respect of insurance premiums of a non-cancellable or guaranteed renewable accident and sickness insurance policy, or a life insurance policy other than a group term life insurance policy that provides coverage for a period of 12 months or less), rent or royalties in respect of a period that is after the end of the year, or

(7) Section 18 of the Act is amended by adding the following after subsection (9.01):

Marginal note:Application of subsection (9) to insurers

(9.02) For the purpose of subsection (9), an outlay or expense made or incurred by an insurer on account of the acquisition of an insurance policy (other than a non-cancellable or guaranteed renewable accident and sickness insurance policy or a life insurance policy other than a group term life insurance policy that provides coverage for a period of 12 months or less) is deemed to be an expense incurred as consideration for services rendered consistently throughout the period of coverage of the policy.

(8) Subsections (1) and (4) apply after June 27, 1999.

(9) Subsection (2) applies to outlays and expenses made or incurred after December 21, 2000.

(10) Subsections (3) and (5) apply to taxation years that begin after 2000.

(11) Subsections (6) and (7) apply to taxation years that begin after 1999 except that, where a taxpayer so elects in writing and files the election with the Minister of National Revenue on or before the taxpayer’s filing-due date for the taxpayer’s taxation year in which this Act receives royal assent, they apply to taxation years that end after 1997.

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

Marginal note:Non-applicability of section 18.1

(15) Subject to subsections (1) and (14), this section does not apply to a taxpayer’s matchable expenditure in respect of a right to receive production if

(a) no portion of the expenditure can reasonably be considered to have been paid to another taxpayer, or to a person with whom the other taxpayer does not deal at arm’s length, to acquire the right from the other taxpayer and

(i) the taxpayer’s expenditure cannot reasonably be considered to relate to a tax shelter or tax shelter investment (within the meaning assigned by subsection 143.2(1)) and none of the main purposes for making the expenditure is that the taxpayer, or a person with whom the taxpayer does not deal at arm’s length, obtain a tax benefit, or

(ii) before the end of the taxation year in which the expenditure is made, the total of all amounts each of which is included in computing the taxpayer’s income for the year (other than any portion of such an amount that is the subject of a reserve claimed by the taxpayer for the year under this Act) in respect of the right to receive production to which the matchable expenditure relates exceeds 80% of the expenditure; or

(b) the expenditure is in respect of commissions or other expenses related to the issuance of an insurance policy for which all or a portion of a risk has been ceded to the taxpayer (in this paragraph referred to as the “reinsurer”) and both the reinsurer and the person to whom the expenditure is made or is to be made are insurers subject to the supervision of

(i) the Superintendent of Financial Institutions, in the case of an insurer that is required by law to report to the Superintendent of Financial Institutions, or

(ii) in any other case, the Superintendent of Insurance or other similar officer or authority of the province under whose laws the insurer is incorporated.

(2) Subsection (1) applies to expenditures made after November 17, 1996.

11. (1) The portion of subsection 19(1) of the Act before subparagraph (b)(i) is replaced by the following:

Marginal note:Limitation re advertising expense — newspapers

19. (1) In computing income, no deduction shall be made in respect of an otherwise deductible outlay or expense of a taxpayer for advertising space in an issue of a newspaper for an advertisement directed primarily to a market in Canada unless

(a) the issue is a Canadian issue of a Canadian newspaper; or

(b) the issue is an issue of a newspaper that would be a Canadian issue of a Canadian newspaper except that

(2) The definition “substantially the same” in subsection 19(5) of the Act is repealed.

(3) The definition “Canadian issue” in subsection 19(5) of the Act is replaced by the following:

“Canadian issue”

« édition canadienne »

“Canadian issue” of a newspaper means an issue, including a special issue,

(a) the type of which, other than the type for advertisements or features, is set in Canada,

(b) all of which, exclusive of any comics supplement, is printed in Canada,

(c) that is edited in Canada by individuals resident in Canada, and

(d) that is published in Canada;

(4) The portion of the definition “Canadian newspaper or periodical” in subsection 19(5) of the Act before paragraph (a) is replaced by the following:

“Canadian newspaper”

« journal canadien »

“Canadian newspaper” means a newspaper the exclusive right to produce and publish issues of which is held by one or more of the following:

(5) Section 19 of the Act is amended by adding the following after subsection (5):

Marginal note:Interpretation

(5.1) In this section, each of the following is deemed to be a Canadian citizen:

(a) a trust or corporation described in paragraph 149(1)(o) or (o.1) formed in connection with a pension plan that exists for the benefit of individuals a majority of whom are Canadian citizens;

(b) a trust described in paragraph 149(1)(r) or (x), the annuitant in respect of which is a Canadian citizen;

(c) a mutual fund trust, within the meaning assigned by subsection 132(6), other than a mutual fund trust the majority of the units of which are held by citizens or subjects of a country other than Canada;

(d) a trust, each beneficiary of which is a person, partnership, association or society described in any of paragraphs (a) to (e) of the definition “Canadian newspaper” in subsection (5); and

(e) a person, association or society described in paragraph (c) or (d) of the definition “Canadian newspaper” in subsection (5).

(6) Subsections 19(6) to (8) of the Act are replaced by the following:

Marginal note:Trust property

(6) Where the right that is held by any person, partnership, association or society described in the definition “Canadian newspaper” in subsection (5) to produce and publish issues of a newspaper is held as property of a trust or estate, the newspaper is not a Canadian newspaper unless each beneficiary under the trust or estate is a person, partnership, association or society described in that definition.

Marginal note:Grace period

(7) A Canadian newspaper that would, but for this subsection, cease to be a Canadian newspaper, is deemed to continue to be a Canadian newspaper until the end of the 12th month that follows the month in which it would, but for this subsection, have ceased to be a Canadian newspaper.

Marginal note:Non-Canadian newspaper

(8) Where at any time one or more persons or partnerships that are not described in any of paragraphs (a) to (e) of the definition “Canadian newspaper” in subsection (5) have any direct or indirect influence that, if exercised, would result in control in fact of a person or partnership that holds a right to produce or publish issues of a newspaper, the newspaper is deemed not to be a Canadian newspaper at that time.

(7) Subsections (1) to (4) and (6) apply in respect of advertisements placed in an issue dated after May 2000.

(8) Subsection (5) applies in respect of advertisements placed in an issue dated after June 1996 except that, in applying subsection 19(5.1) of the Act, as enacted by subsection (5), to advertisements placed in an issue dated after June 1996 and before June 2000, the references in that subsection 19(5.1) to “Canadian newspaper” shall be read as references to “Canadian newspaper or periodical”.

12. (1) The Act is amended by adding the following after section 19:

Marginal note:Definitions

19.01 (1) The definitions in this subsection apply in this section.

“advertisement directed at the Canadian market”

« annonce destinée au marché canadien »

“advertisement directed at the Canadian market” has the same meaning as the expression “directed at the Canadian market” in section 2 of the Foreign Publishers Advertising Services Act and includes a reference to that expression made by or under that Act.

“original editorial content”

« contenu rédactionnel original »

“original editorial content” in respect of an issue of a periodical means non-advertising content

(a) the author of which is a Canadian citizen or a permanent resident of Canada within the meaning assigned by the Immigration Act and, for this purpose, “author” includes a writer, a journalist, an illustrator and a photographer; or

(b) that is created for the Canadian market and has not been published in any other edition of that issue of the periodical published outside Canada.

“periodical”

« périodique »

“periodical” has the meaning assigned by section 2 of the Foreign Publishers Advertising Services Act.

Marginal note:Limitation re advertising expenses — periodicals

(2) Subject to subsections (3) and (4), in computing income, no deduction shall be made by a taxpayer in respect of an otherwise deductible outlay or expense for advertising space in an issue of a periodical for an advertisement directed at the Canadian market.

Marginal note:100% deduction

(3) A taxpayer may deduct in computing income an outlay or expense of the taxpayer for advertising space in an issue of a periodical for an advertisement directed at the Canadian market if

(a) the original editorial content in the issue is 80% or more of the total non-advertising content in the issue; and

(b) the outlay or expense would, but for subsection (2), be deductible in computing the taxpayer’s income.

Marginal note:50% deduction

(4) A taxpayer may deduct in computing income 50% of an outlay or expense of the taxpayer for advertising space in an issue of a periodical for an advertisement directed at the Canadian market if

(a) the original editorial content in the issue is less than 80% of the total non-advertising content in the issue; and

(b) the outlay or expense would, but for subsection (2), be deductible in computing the taxpayer’s income.

Marginal note:Application

(5) For the purposes of subsections (3) and (4),

(a) the percentage that original editorial content is of total non-advertising content is the percentage that the total space occupied by original editorial content in the issue is of the total space occupied by non-advertising content in the issue; and

(b) the Minister may obtain the advice of the Department of Canadian Heritage for the purpose of

(i) determining the result obtained under paragraph (a), and

(ii) interpreting any expression defined in this section that is defined in the Foreign Publishers Advertising Services Act.

Marginal note:Editions of issues

(6) For the purposes of this section,

(a) where an issue of a periodical is published in several versions, each version is an edition of that issue; and

(b) where an issue of a periodical is published in only one version, that version is an edition of that issue.

(2) Subsection (1) applies in respect of advertisements placed in an issue dated after May 2000.

13. (1) Paragraph 20(1)(b) of the Act is replaced by the following:

Marginal note:Cumulative eligible capital amount

(b) such amount as the taxpayer claims in respect of a business, not exceeding 7% of the taxpayer’s cumulative eligible capital in respect of the business at the end of the year except that, where the year is less than 12 months, the amount allowed as a deduction under this paragraph shall not exceed that proportion of the maximum amount otherwise allowable that the number of days in the taxation year is of 365;

(2) The portion of paragraph 20(1)(e) of the Act before subparagraph (i) is replaced by the following:

Marginal note:Expenses re financing

(e) such part of an amount (other than an excluded amount) that is not otherwise deductible in computing the income of the taxpayer and that is an expense incurred in the year or a preceding taxation year

(3) The portion of paragraph 20(1)(e) of the Act after subparagraph (ii.2) and before subparagraph (iii) is replaced by the following:

(including a commission, fee, or other amount paid or payable for or on account of services rendered by a person as a salesperson, agent or dealer in securities in the course of the issuance, sale or borrowing) that is the lesser of

(4) Paragraph 20(1)(e) of the Act is amended by adding the following before subparagraph (v):

(iv.1) “excluded amount” means

(A) an amount paid or payable as or on account of the principal amount of a debt obligation or interest in respect of a debt obligation,

(B) an amount that is contingent or dependent on the use of, or production from, property, or

(C) an amount that is computed by reference to revenue, profit, cash flow, commodity price or any other similar criterion or by reference to dividends paid or payable to shareholders of any class of shares of the capital stock of a corporation,

(5) Subparagraph 20(1)(f)(ii) of the Act is amended by replacing the reference to the fraction “3/4” with a reference to the fraction “1/2”.

(6) Paragraph 20(1)(z.1) of the Act is amended by replacing the reference to the fraction “3/4” with a reference to the fraction “1/2”.

(7) Subparagraph 20(1)(hh)(ii) of the Act is replaced by the following:

(ii) that is, by reason of subparagraph 12(1)(x)(vi) or subsection 12(2.2), not included under paragraph 12(1)(x) in computing the taxpayer’s income for the year or a preceding taxation year, where the particular amount relates to an outlay or expense (other than an outlay or expense that is in respect of the cost of property of the taxpayer or that is or would be, if amounts deductible by the taxpayer were not limited by reason of paragraph 66(4)(b), subsection 66.1(2), subparagraph 66.2(2)(a)(ii), the words “30% of” in clause 66.21(4)(a)(ii)(B), clause 66.21(4)(a)(ii)(C) or (D) or subparagraph 66.4(2)(a)(ii), deductible under section 66, 66.1, 66.2, 66.21 or 66.4) that would, if the particular amount had not been received, have been deductible in computing the taxpayer’s income for the year or a preceding taxation year;

(8) Subsection 20(4.2) of the Act is replaced by the following:

Marginal note:Bad debts re eligible capital property

(4.2) Where, in respect of one or more dispositions of eligible capital property by a taxpayer, an amount that is described in paragraph (a) of the description of E in the definition “cumulative eligible capital” in subsection 14(5) in respect of the taxpayer is established by the taxpayer to have become a bad debt in a taxation year, there shall be deducted in computing the taxpayer’s income for the year the amount determined by the formula

(A + B) – (C + D + E + F + G + H)

where


is the lesser of

(a) 1/2 of the total of all amounts each of which is such an amount that was so established to have become a bad debt in the year or a preceding taxation year, and

(b) the amount that is

(i) where the year ended after February 27, 2000, the amount, if any, that would be the total of all amounts determined by the formula in paragraph 14(1)(b) (if that formula were read without reference to the description of D) for the year, or for a preceding taxation year that ended after February 27, 2000, and

(ii) where the year ended before February 28, 2000, nil;


is the amount, if any, by which
(a) 3/4 of the total of all amounts each of which is such an amount that was so established to be a bad debt in the year or a preceding taxation year

exceeds the total of

(b) 3/2 of the amount by which

(i) the value of A

exceeds

(ii) the amount included in the value of A because of subparagraph (b)(i) of the description of A in respect of taxation years that ended after February 27, 2000 and before October 18, 2000, and

(c) 9/8 of the amount included in the value of A because of subparagraph (b)(i) of the description of A in respect of taxation years that ended after February 27, 2000 and before October 18, 2000;


is the total of all amounts each of which is an amount determined under subsection 14(1) or (1.1) for the year, or a preceding taxation year, that ends after October 17, 2000 and in respect of which a deduction can reasonably be considered to have been claimed under section 110.6 by the taxpayer;


is the total of all amounts each of which is an amount determined under subsection 14(1) or (1.1) for the year, or a preceding taxation year, that ended after February 27, 2000 and before October 18, 2000 and in respect of which a deduction can reasonably be considered to have been claimed under section 110.6 by the taxpayer;


is the total of all amounts each of which is an amount determined under subsection 14(1) or (1.1) for a preceding taxation year that ended before February 28, 2000 and in respect of which a deduction can reasonably be considered to have been claimed under section 110.6 by the taxpayer;


is the total of

(a) 2/3 of the total of all amounts each of which is the value determined in respect of the taxpayer for D in the formula in paragraph 14(1)(b) for the year, or a preceding taxation year, that ends after October 17, 2000, and

(b) 8/9 of the total of all amounts each of which is the value determined in respect of the taxpayer for D in the formula in paragraph 14(1)(b) for the year, or a preceding taxation year, that ended after February 27, 2000 and before October 18, 2000;


is the total of all amounts each of which is the value determined in respect of the taxpayer for D in the formula in subparagraph 14(1)(a)(v) (as that subparagraph applied for taxation years that ended before February 28, 2000) for a preceding taxation year; and


is the total of all amounts deducted by the taxpayer under this subsection for preceding taxation years.

Marginal note:Deemed allowable capital loss

(4.3) Where, in respect of one or more dispositions of eligible capital property by a taxpayer, an amount that is described in paragraph (a) of the description of E in the definition “cumulative eligible capital” in subsection 14(5) in respect of the taxpayer is established by the taxpayer to have become a bad debt in a taxation year, the taxpayer is deemed to have an allowable capital loss from a disposition of capital property in the year equal to the lesser of

(a) the total of the value determined for A and 2/3 of the value determined for B in the formula in subsection (4.2) in respect of the taxpayer for the year; and

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

(i) the value determined for C or paragraph (a) of the description of F in the formula in subsection (4.2) in respect of the taxpayer for the year,

(ii) 3/4 of the value determined for D or paragraph (b) of the description of F in the formula in subsection (4.2) in respect of the taxpayer for the year, or

(iii) 2/3 of the value determined for E or G in the formula in subsection (4.2) in respect of the taxpayer for the year.

(9) Subsection (1) applies to taxation years that begin after December 21, 2000.

(10) Subsections (2) to (4) apply to expenses incurred by a taxpayer after November 1999, other than expenses incurred pursuant to a written agreement made by the taxpayer before December 1999.

(11) Subsections (5) and (6) apply in respect of amounts that become payable after February 27, 2000 except that, for amounts that became payable after February 27, 2000 and before October 18, 2000, the reference to the fraction “1/2” in subparagraph 20(1)(f)(ii) of the Act, as enacted by subsection (5), and in paragraph 20(1)(z.1) of the Act, as enacted by subsection (6), shall be read as a reference to the fraction “2/3”.

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

(13) Subsection (8) applies to taxation years that end after February 27, 2000 except that, for taxation years that ended after February 27, 2000 and before October 18, 2000,

(a) the reference to the fraction “1/2” in paragraph (a) of the description of A in subsection 20(4.2) of the Act, as enacted by subsection (8), shall be read as a reference to the fraction “2/3”;

(b) the reference to the fraction “3/2” in paragraph (b) of the description of B in subsection 20(4.2) of the Act, as enacted by subsection (8), shall be read as a reference to the fraction “9/8”;

(c) the reference to the fraction “2/3” in paragraph 20(4.3)(a) and subparagraph 20(4.3)(b)(iii) of the Act, as enacted by subsection (8), shall be read as a reference to the fraction “8/9”; and

(d) subparagraph 20(4.3)(b)(ii) of the Act, as enacted by subsection (8), shall be read without reference to the expression “3/4 of”.

14. (1) The Act is amended by adding the following after section 20.1:

Marginal note:Interest — authorized foreign bank — interpretation

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

“branch advance”

« avance de succursale »

“branch advance” of an authorized foreign bank means an amount allocated or provided by, or on behalf of, the bank to, or for the benefit of, its Canadian banking business under terms that were documented, before the amount was so allocated or provided, to the same extent as, and in a form similar to the form in which, the bank would ordinarily document a loan by it to a person with whom it deals at arm’s length.

“branch financial statements”

« états financiers de succursale »

“branch financial statements” of an authorized foreign bank for a taxation year means the unconsolidated statements of assets and liabilities and of income and expenses for the year, in respect of its Canadian banking business,

(a) that form part of the bank’s annual report for the year filed with the Superintendent of Financial Institutions as required under section 601 of the Bank Act, and accepted by the Superintendent, and

(b) if no filing is so required for the taxation year, that are prepared in a manner consistent with the statements in the annual report or reports so filed and accepted for the period or periods in which the taxation year falls,

except if the Minister demonstrates that the statements are not prepared in accordance with generally-accepted accounting principles in Canada as modified by any specifications applicable to the bank made by the Superintendent of Financial Institutions under subsection 308(4) of the Bank Act (in this definition referred to as “modified GAAP”), in which case it means the statements subject to such modifications as are required to make them comply with modified GAAP.

“calculation period”

« période de calcul »

“calculation period” of an authorized foreign bank for a taxation year means any one of a series of regular periods into which the year is divided in a designation by the bank in its return of income for the year or, in the absence of such a designation, by the Minister,

(a) none of which is longer than 31 days;

(b) the first of which commences at the beginning of the year and the last of which ends at the end of the year; and

(c) that are, unless the Minister otherwise agrees in writing, consistent with the calculation periods designated for the bank’s preceding taxation year.

Marginal note:Formula elements

(2) The following descriptions apply for the purposes of the formulae in subsection (3) for any calculation period in a taxation year of an authorized foreign bank:


is the amount of the bank’s assets at the end of the period;

BA 
is the amount of the bank’s branch advances at the end of the period;

IBA 
is the total of all amounts each of which is a reasonable amount on account of notional interest for the period, in respect of a branch advance, that would be deductible in computing the bank’s income for the year if it were interest payable by, and the advance were indebtedness of, the bank to another person and if this Act were read without reference to paragraph 18(1)(v) and this section;

IL 
is the total of all amounts each of which is an amount on account of interest for the period in respect of a liability of the bank to another person or partnership that would be deductible in computing the bank’s income for the year if this Act were read without reference to paragraph 18(1)(v) and this section; and


is the amount of the bank’s liabilities to other persons and partnerships at the end of the period.

Marginal note:Interest deduction

(3) In computing the income of an authorized foreign bank from its Canadian banking business for a taxation year, there may be deducted on account of interest for each calculation period of the bank for the year,

(a) where the total amount at the end of the period of its liabilities to other persons and partnerships and branch advances is 95% or more of the amount of its assets at that time, an amount not exceeding

(i) if the amount of liabilities to other persons and partnerships at that time is less than 95% of the amount of its assets at that time, the amount determined by the formula

IL + IBA × (0.95 × A – L) / BA

and

(ii) if the amount of those liabilities at that time is greater than or equal to 95% of the amount of its assets at that time, the amount determined by the formula

IL × (0.95 × A) / L

and

(b) in any other case, the total of

(i) the amount determined by the formula

IL + IBA

and

(ii) the product of

(A) the amount claimed by the bank, in its return of income for the year, not exceeding the amount determined by the formula

(0.95 × A) – (L + BA)

and

(B) the average, based on daily observations, of the Bank of Canada bank rate for the period.

Marginal note:Branch amounts

(4) Only amounts that are in respect of an authorized foreign bank’s Canadian banking business, and that are recorded in the books of account of the business in a manner consistent with the manner in which they are required to be treated for the purposes of the branch financial statements, shall be used to determine

(a) the amounts in subsection (2); and

(b) the amounts in subsection (3) of an authorized foreign bank’s assets, liabilities to other persons and partnerships, and branch advances.

Marginal note:Notional interest

(5) For the purposes of the description of IBA in subsection (2), a reasonable amount on account of notional interest for a calculation period in respect of a branch advance is the amount that would be payable on account of interest for the period by a notional borrower, having regard to the duration of the advance, the currency in which repayment is required and all other terms, as adjusted by paragraph (c), of the advance, if

(a) the borrower were a person that dealt at arm’s length with the bank, that carried on the bank’s Canadian banking business and that had the same credit-worthiness and borrowing capacity as the bank;

(b) the advance were a loan by the bank to the borrower; and

(c) any of the terms of the advance (excluding the rate of interest, but including the structure of the interest calculation, such as whether the rate is fixed or floating and the choice of any reference rate referred to) that are not terms that would be made between the bank as lender and the borrower, having regard to all the circumstances, including the nature of the Canadian banking business, the use of the advanced funds in the business and normal risk management practices for banks, were instead terms that would be agreed to by the bank and the borrower.

Marginal note:Weak currency debt — interpretation

20.3 (1) The definitions in this subsection apply in this section.

“exchange date”

« date de l’échange »

“exchange date” in respect of a debt of a taxpayer that is at any time a weak currency debt means, if the debt is incurred or assumed by the taxpayer

(a) in respect of borrowed money that is denominated in the final currency, the day that the debt is incurred or assumed by the taxpayer; and

(b) in respect of borrowed money that is not denominated in the final currency, or in respect of the acquisition of property, the day on which the taxpayer uses the borrowed money or the acquired property, directly or indirectly, to acquire funds that are, or to settle an obligation that is, denominated in the final currency.

“hedge”

« opération de couverture »

“hedge” in respect of a debt of a taxpayer that is at any time a weak currency debt means any agreement made by the taxpayer

(a) that can reasonably be regarded as having been made by the taxpayer primarily to reduce the taxpayer’s risk, with respect to payments of principal or interest in respect of the debt, of fluctuations in the value of the weak currency; and

(b) that is identified by the taxpayer as a hedge in respect of the debt in a designation in prescribed form filed with the Minister on or before the 30th day after the day the taxpayer enters into the agreement.

“weak currency debt”

« dette en devise faible »

“weak currency debt” of a taxpayer at a particular time means a particular debt in a foreign currency (in this section referred to as the “weak currency”), incurred or assumed by the taxpayer at a time (in this section referred to as the “commitment time”) after February 27, 2000, in respect of a borrowing of money or an acquisition of property, where

(a) any of the following applies, namely,

(i) the borrowed money is denominated in a currency (in this section referred to as the “final currency”) other than the weak currency, is used for the purpose of earning income from a business or property and is not used to acquire funds in a currency other than the final currency,

(ii) the borrowed money or the acquired property is used, directly or indirectly, to acquire funds that are denominated in a currency (in this section referred to as the “final currency”) other than the weak currency, that are used for the purpose of earning income from a business or property and that are not used to acquire funds in a currency other than the final currency,

(iii) the borrowed money or the acquired property is used, directly or indirectly, to settle an obligation that is denominated in a currency (in this section referred to as the “final currency”) other than the weak currency, that is incurred or assumed for the purpose of earning income from a business or property and that is not incurred or assumed to acquire funds in a currency other than the final currency, or

(iv) the borrowed money or the acquired property is used, directly or indirectly, to settle another debt of the taxpayer that is at any time a weak currency debt in respect of which the final currency (which is deemed to be the final currency in respect of the particular debt) is a currency other than the currency of the particular debt;

(b) the amount of the particular debt (together with any other debt that would, but for this paragraph, be at any time a weak currency debt, and that can reasonably be regarded as having been incurred or assumed by the taxpayer as part of a series of transactions that includes the incurring or assumption of the particular debt) exceeds $500,000; and

(c) either of the following applies, namely,

(i) if the rate at which interest is payable at the particular time in the weak currency in respect of the particular debt is determined under a formula based on the value from time to time of a reference rate (other than a reference rate the value of which is established or materially influenced by the taxpayer), the interest rate at the commitment time, as determined under the formula as though interest were then payable, exceeds by more than two percentage points the rate at which interest would have been payable at the commitment time in the final currency if

(A) the taxpayer had, at the commitment time, instead incurred or assumed an equivalent amount of debt in the final currency on the same terms as the particular debt (excluding the rate of interest but including the structure of the interest calculation, such as whether the rate is fixed or floating) with those modifications that the difference in currency requires, and

(B) interest on the equivalent amount of debt referred to in clause (A) was payable at the commitment time, or

(ii) in any other case, the rate at which interest is payable at the particular time in the weak currency in respect of the particular debt exceeds by more than two percentage points the rate at which interest would have been payable at the particular time in the final currency if at the commitment time the taxpayer had instead incurred or assumed an equivalent amount of debt in the final currency on the same terms as the particular debt (excluding the rate of interest but including the structure of the interest calculation, such as whether the rate is fixed or floating), with those modifications that the difference in currency requires.

Marginal note:Interest and gain

(2) Notwithstanding any other provision of this Act, the following rules apply in respect of a particular debt of a taxpayer (other than a corporation described in one or more of paragraphs (a), (b), (c) and (e) of the definition “specified financial institution” in subsection 248(1)) that is at any time a weak currency debt:

(a) no deduction on account of interest that accrues on the debt for any period that begins after the day that is the later of June 30, 2000 and the exchange date during which it is a weak currency debt shall exceed the amount of interest that would, if at the commitment time the taxpayer had instead incurred or assumed an equivalent amount of debt, the principal and interest in respect of which were denominated in the final currency, on the same terms as the particular debt (excluding the rate of interest but including the structure of the interest calculation, such as whether the rate is fixed or floating) have accrued on the equivalent debt during that period, with those modifications that the difference in currency requires;

(b) the amount, if any, of the taxpayer’s gain or loss (in this section referred to as a “foreign exchange gain or loss”) for a taxation year on the settlement or extinguishment of the debt that arises because of the fluctuation in the value of any currency shall be included or deducted, as the case may be, in computing the taxpayer’s income for the year from the business or the property to which the debt relates; and

(c) the amount of any interest on the debt that was, because of this subsection, not deductible is deemed, for the purpose of computing the taxpayer’s foreign exchange gain or loss on the settlement or extinguishment of the debt, to be an amount paid by the taxpayer to settle or extinguish the debt.

Marginal note:Hedges

(3) In applying subsection (2) in circumstances where a taxpayer has entered into a hedge in respect of a debt of the taxpayer that is at any time a weak currency debt, the amount paid or payable in the weak currency for a taxation year on account of interest on the debt, or paid in the weak currency in the year on account of the debt’s principal, shall be decreased by the amount of any foreign exchange gain, or increased by the amount of any foreign exchange loss, on the hedge in respect of the amount so paid or payable.

Marginal note:Repayment of principal

(4) If the amount (expressed in the weak currency) outstanding on account of principal in respect of a debt of the taxpayer that is at any time a weak currency debt is reduced before maturity (whether by repayment or otherwise), the amount (expressed in the weak currency) of the reduction is deemed, except for the purposes of determining the rate of interest that would have been charged on an equivalent loan in the final currency and applying paragraph (b) of the definition “weak currency debt” in subsection (1), to have been a separate debt from the commitment time.

(2) Section 20.2, as enacted by subsection (1), applies after June 27, 1999 except that in its application to amounts allocated or provided before the day that is 14 days after August 8, 2000, the definition “branch advance” in subsection 20.2(1), as enacted by subsection (1), shall be read as follows:

“branch advance”

“branch advance” of an authorized foreign bank at a particular time means an amount allocated or provided by, or on behalf of, the bank to, or for the benefit of, its Canadian banking business under terms that were documented, on or before December 31, 2000, to the same extent as, and in a form similar to the form in which, the bank would ordinarily document a loan by it to a person with whom it deals at arm’s length.

(3) Section 20.3 of the Act, as enacted by subsection (1), applies to taxation years that end after February 27, 2000.

(4) A designation described in paragraph (b) of the definition “hedge” in subsection 20.3(1) of the Act, as enacted by subsection (1), is deemed to have been filed in a timely manner if it is filed on or before the later of July 31, 2000 and the 30th day after the day the taxpayer agrees to the hedge.

15. (1) Subsection 21(2) of the Act is replaced by the following:

Marginal note:Borrowed money used for exploration or development

(2) Where in a taxation year a taxpayer has used borrowed money for the purpose of exploration, development or the acquisition of property and the expenses incurred by the taxpayer in respect of those activities are Canadian exploration and development expenses, Canadian exploration expenses, Canadian development expenses, Canadian oil and gas property expenses, foreign resource expenses in respect of a country, or foreign exploration and development expenses, as the case may be, if the taxpayer so elects under this subsection in the taxpayer’s return of income for the year,

(a) in computing the taxpayer’s income for the year and for such of the three immediately preceding taxation years as the taxpayer had, paragraphs 20(1)(c), (d), (e) and (e.1) do not apply to the amount or to the part of the amount specified in the taxpayer’s election that, but for that election, would be deductible in computing the taxpayer’s income (other than exempt income or income that is exempt from tax under this Part) for any such year in respect of the borrowed money used for the exploration, development or acquisition of property, as the case may be; and

(b) the amount or the part of the amount, as the case may be, described in paragraph (a) is deemed to be Canadian exploration and development expenses, Canadian exploration expenses, Canadian development expenses, Canadian oil and gas property expenses, foreign resource expenses in respect of a country, or foreign exploration and development expenses, as the case may be, incurred by the taxpayer in the year.

(2) Subsection 21(4) of the Act is amended by striking out the word “and” at the end of paragraph (a) and by replacing the portion after paragraph (a) with the following:

(b) in each taxation year, if any, after that preceding taxation year and before the particular year, made an election under this subsection covering the total amount that, but for that election, would have been deductible in computing the taxpayer’s income (other than exempt income or income that is exempt from tax under this Part) for each such year in respect of the borrowed money used for the exploration, development or acquisition of property, as the case may be, and

(c) so elects in the taxpayer’s return of income for the particular year,

the following rules apply:

(d) paragraphs 20(1)(c), (d), (e) and (e.1) do not apply to the amount or to the part of the amount specified in the election that, but for the election, would be deductible in computing the taxpayer’s income (other than exempt income or income that is exempt from tax under this Part) for the particular year in respect of the borrowed money used for the exploration, development or acquisition of property, and

(e) the amount or part of the amount, as the case may be, is deemed to be Canadian exploration and development expenses, Canadian exploration expenses, Canadian development expenses, Canadian oil and gas property expenses, foreign resource expenses in respect of a country, or foreign exploration and development expenses, as the case may be, incurred by the taxpayer in the particular year.

(3) Subsections (1) and (2) apply to taxation years that begin after 2000.

16. (1) Paragraph 24(2)(d) of the Act is replaced by the following:

(d) for the purpose of determining after that time the amount required to be included under paragraph 14(1)(b) in computing the income of the spouse, the common-law partner or the corporation in respect of any subsequent disposition of property of the business, there shall be added to the amount otherwise determined for Q in the definition “cumulative eligible capital” in subsection 14(5) the amount, if any, determined for Q in that definition in respect of the business of the individual immediately before the individual ceased to carry on business.

(2) Subsection (1) applies to taxation years that end after February 27, 2000.

17. (1) Subsection 27(2) of the Act is replaced by the following:

Marginal note:Presumption

(2) Notwithstanding any other provision of this Act, a prescribed federal Crown corporation and any corporation controlled by such a corporation are each deemed not to be a private corporation and paragraphs 149(1)(d) to (d.4) do not apply to those corporations.

(2) Subsection (1) applies to taxation years and fiscal periods that begin after 1998.

18. (1) Paragraphs 28(4)(a) and (b) of the Act are replaced by the following:

(a) for the year, if the taxpayer was non-resident throughout the year; and

(b) for the part of the year throughout which the taxpayer was resident in Canada, if the taxpayer was resident in Canada at any time in the year.

(2) Subsection 28(4.1) of the Act is repealed.

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

(4) Subsection (2) applies after December 23, 1998.

19. (1) The definition “foreign bank” in subsection 33.1(1) of the Act is replaced by the following:

“foreign bank”

« banque étrangère »

“foreign bank” has the meaning assigned by the definition “foreign bank” in section 2 of the Bank Act (read without reference to paragraph (g)), except that an authorized foreign bank is not considered to be a foreign bank in respect of its Canadian banking business;

(2) Subsection (1) applies after June 27, 1999.

20. (1) The definition “mining property” in subsection 35(2) of the Act is replaced by the following:

“mining property”

« bien minier »

“mining property” means

(a) a right, licence or privilege to prospect, explore, drill or mine for minerals in a mineral resource in Canada, or

(b) real property in Canada (other than depreciable property) the principal value of which depends on its mineral resource content;

(2) Subsection (1) applies to shares received after December 21, 2000.

21. (1) Subsection 37(1) of the Act is amended by adding the following after paragraph (d):

(d.1) the total of all amounts each of which is the super-allowance benefit amount (within the meaning assigned by subsection 127(9)) for the year or for a preceding taxation year in respect of the taxpayer in respect of a province,

(2) Subsection (1) applies to taxation years that begin after February 2000 except that, if a taxpayer’s first taxation year that begins after February 2000 ends before 2001, subsection (1) applies to the taxpayer’s taxation years that begin after 2000.

22. (1) Paragraph 38(a) of the Act is replaced by the following:

(a) subject to paragraphs (a.1) and (a.2), a taxpayer’s taxable capital gain for a taxation year from the disposition of any property is 1/2 of the taxpayer’s capital gain for the year from the disposition of the property;

(2) Paragraph 38(a.1) of the Act is amended by replacing the reference to the fraction “3/8” with a reference to the fraction “1/4”.

(3) Section 38 of the Act is amended by adding the following after paragraph (a.1):

(a.2) a taxpayer’s taxable capital gain for a taxation year from the disposition of a property is 1/4 of the taxpayer’s capital gain for the year from the disposition of the property where

(i) the disposition is the making of a gift to a qualified donee (other than a private foundation) of a property described, in respect of the taxpayer, in paragraph 110.1(1)(d) or in the definition “total ecological gifts” in subsection 118.1(1), or

(ii) the disposition is deemed by section 70 to have occurred and the taxpayer is deemed by subsection 118.1(5) to have made a gift described in subparagraph (i) of the property;

(4) Paragraphs 38(b) and (c) of the Act are amended by replacing the references to the fraction “3/4” with references to the fraction “1/2”.

(5) Subsections (1) and (4) apply to the 2000 and subsequent taxation years except that

(a) for a taxation year of a taxpayer that ended before February 28, 2000, the references to the fraction “1/2” in paragraph 38(a) of the Act, as enacted by subsection (1), and in paragraphs 38(b) and (c) of the Act, as enacted by subsection (4), shall be read as references to the fraction “3/4”,

(b) for a taxpayer’s taxation year that began after February 28, 2000 and ended before October 17, 2000, the references to the fraction “1/2” in paragraph 38(a) of the Act as enacted by subsection (1) and in paragraphs 38(b) and (c) of the Act, as enacted by subsection (4), shall be read as references to the fraction “2/3”,

(c) for a taxation year of a taxpayer that includes February 28, 2000 but does not include October 18, 2000, the references to the fraction “1/2” in paragraph 38(a) of the Act, as enacted by subsection (1), and in paragraphs 38(b) and (c) of the Act, as enacted by subsection (4), shall be read as references to the fraction that applies to the taxpayer for that year, and for this purpose,

(i) where the amount of the taxpayer’s net capital gains from dispositions of property in the period that began at the beginning of the year and ended at the end of February 27, 2000 (in this paragraph referred to as the “first period”) exceeds the amount of the taxpayer’s net capital losses from dispositions of property in the period that begins at the beginning of February 28, 2000 and ends at the end of the year (in this paragraph referred to as the “second period”), the fraction that applies to the taxpayer for the year is 3/4,

(ii) where the amount of the taxpayer’s net capital losses from dispositions of property in the first period exceeds the amount of the taxpayer’s net capital gains from dispositions of property in the second period, the fraction that applies to the taxpayer for the year is 3/4,

(iii) where the amount of the taxpayer’s net capital gains from dispositions of property in the first period is less than the amount of the taxpayer’s net capital losses from dispositions of property in the second period, the fraction that applies to the taxpayer for the year is 2/3,

(iv) where the amount of the taxpayer’s net capital losses from dispositions of property in the first period is less than the amount of the taxpayer’s net capital gains from dispositions of property in the second period, the fraction that applies to the taxpayer for the year is 2/3,

(v) where the taxpayer has only net capital gains, or only net capital losses, from dispositions of property in each of the first and second periods, the fraction that applies to the taxpayer for the year is the fraction determined by the formula

(3/4 × A + 2/3 × B) / (A + B)

where


is the net capital gains or the net capital losses, as the case may be, of the taxpayer from dispositions of property in the first period, and


is the net capital gains or the net capital losses, as the case may be, of the taxpayer from dispositions of property in the second period, and

(vi) where the net capital gains and net capital losses of the taxpayer for the year are nil, the fraction that applies to the taxpayer for the year is 2/3,

(d) for a taxation year of a taxpayer that began after February 27, 2000 and includes October 18, 2000, the references to the fraction “1/2” in paragraph 38(a) of the Act, as enacted by subsection (1), and in paragraphs 38(b) and (c) of the Act, as enacted by subsection (4), shall be read as references to the fraction that applies to the taxpayer for that year, and for this purpose,

(i) where the amount of the taxpayer’s net capital gains from dispositions of property in the period that began at the beginning of the year and ended at the end of October 17, 2000 (in this paragraph referred to as the “first period”) exceeds the amount of the taxpayer’s net capital losses from dispositions of property in the period that begins at the beginning of October 18, 2000 and ends at the end of the year (in this paragraph referred to as the “second period”), the fraction that applies to the taxpayer for the year is 2/3,

(ii) where the amount of the taxpayer’s net capital losses from dispositions of property in the first period exceeds the amount of the taxpayer’s net capital gains from dispositions of property in the second period, the fraction that applies to the taxpayer for the year is 2/3,

(iii) where the amount of the taxpayer’s net capital gains from dispositions of property in the first period is less than the amount of the taxpayer’s net capital losses from dispositions of property in the second period, the fraction that applies to the taxpayer for the year is 1/2,

(iv) where the amount of the taxpayer’s net capital losses from dispositions of property in the first period is less than the amount of the taxpayer’s net capital gains from dispositions of property in the second period, the fraction that applies to the taxpayer for the year is 1/2,

(v) where the taxpayer has only net capital gains, or only net capital losses, from dispositions of property in each of the first and second periods, the fraction that applies to the taxpayer for the year is the fraction determined by the formula

(2/3 × A + 1/2 × B)/(A + B)

where


is the net capital gains or the net capital losses, as the case may be, of the taxpayer from dispositions of property in the first period, and


is the net capital gains or the net capital losses, as the case may be, of the taxpayer from dispositions of property in the second period, and

(vi) where the net capital gains and net capital losses of the taxpayer for the year are nil, the fraction that applies to the taxpayer for the year is 1/2,

(e) for a taxation year of a taxpayer that includes February 27, 2000 and October 18, 2000, the references to the fraction “1/2” in paragraph 38(a) of the Act, as enacted by subsection (1), and in paragraphs 38(b) and (c) of the Act, as enacted by subsection (4), shall be read as references to the fraction that applies to the taxpayer for that year, and for this purpose,

(i) the fraction that applies to the taxpayer for the year is 3/4, where

(A) the amount by which the amount of the taxpayer’s net capital gains from dispositions of property in the period that began at the beginning of the year and ended at the end of February 27, 2000 (in this paragraph referred to as the “first period”) exceeds the amount of the taxpayer’s net capital losses from dispositions of property in the period that began at the beginning of February 28, 2000 and ended at the end of October 17, 2000 (in this paragraph referred to as the “second period”)

exceeds

(B) the amount of the taxpayer’s net capital losses from dispositions of property in the period that begins at the beginning of October 18, 2000 and ends at the end of the year (in this paragraph referred to as the “third period”),

(ii) the fraction that applies to the taxpayer for the year is 3/4, where

(A) the amount by which the amount of the taxpayer’s net capital losses from dispositions of property in the first period exceeds the amount of the taxpayer’s net capital gains from dispositions of property in the second period

exceeds

(B) the amount of the taxpayer’s net capital gains from dispositions of property in the third period,

(iii) the fraction that applies to the taxpayer for the year is 2/3, where

(A) the amount by which the amount of the taxpayer’s net capital gains from dispositions of property in the second period exceeds the amount of the taxpayer’s net capital losses from dispositions of property in the first period

exceeds

(B) the amount of the taxpayer’s net capital losses from dispositions of property in the third period,

(iv) the fraction that applies to the taxpayer for the year is 2/3, where

(A) the amount by which the amount of the taxpayer’s net capital losses from dispositions of property in the second period exceeds the amount of the taxpayer’s net capital gains from dispositions of property in the first period

exceeds

(B) the amount of the taxpayer’s net capital gains from dispositions of property in the third period,

(v) where the taxpayer has net capital gains in each of the first and second periods and the total amount of those net capital gains in those periods exceeds the amount of the taxpayer’s net capital losses in the third period, the fraction that applies to the taxpayer for the year is the fraction that is determined by the formula

(3/4 × A + 2/3 × B) / (A + B)

where


is the net capital gains of the taxpayer from dispositions of property in the first period, and


is the net capital gains of the taxpayer from dispositions of property in the second period,

(vi) where the taxpayer has net capital losses in each of the first and second periods and the total amount of those net capital losses in those periods exceeds the amount of the taxpayer’s net capital gains in the third period, the fraction that applies to the taxpayer for the year is the fraction that is determined by the formula

(3/4 × A + 2/3 × B) / (A + B)

where


is the net capital losses of the taxpayer from dispositions of property in the first period, and


is the net capital losses of the taxpayer from dispositions of property in the second period,

(vii) where the taxpayer has only net capital gains, or only net capital losses, from dispositions of property in each of the first, second and third periods, the fraction that applies to the taxpayer for the year is the fraction that is determined by the formula

(3/4 × A + 2/3 × B + 1/2 × C) / (A + B + C)

where


is the taxpayer’s net capital gains or net capital losses, as the case may be, from dispositions of property in the first period,


is the taxpayer’s net capital gains or net capital losses, as the case may be, from dispositions of property in the second period, and


is the taxpayer’s net capital gains or net capital losses, as the case may be, from dispositions of property in the third period,

(viii) where the amount of the taxpayer’s net capital gains from dispositions of property in the first period exceeds the amount of the taxpayer’s net capital losses from dispositions of property in the second period and the taxpayer has net capital gains from dispositions of property in the third period, the fraction that applies to the taxpayer for the year is the fraction that is determined by the formula

(3/4 × A + 1/2 × B) / (A + B)

where


is the amount by which the taxpayer’s net capital gains from dispositions of property in the first period exceeds the amount of the taxpayer’s net capital losses from dispositions of property in the second period, and


is the taxpayer’s net capital gains from dispositions of property in the third period,

(ix) where the amount of the taxpayer’s net capital losses from dispositions of property in the first period exceeds the amount of the taxpayer’s net capital gains from dispositions of property in the second period and the taxpayer has net capital losses from dispositions of property in the third period, the fraction that applies to the taxpayer for the year is the fraction that is determined by the formula

(3/4 × A + 1/2 × B) / (A + B)

where


is the amount by which the taxpayer’s net capital losses from dispositions of property in the first period exceeds the amount of the taxpayer’s net capital gains from dispositions of property in the second period, and


is the taxpayer’s net capital losses from dispositions of property in the third period,

(x) where the amount of the taxpayer’s net capital gains from dispositions of property in the second period exceeds the amount of the taxpayer’s net capital losses from dispositions of property in the first period and the taxpayer has net capital gains from dispositions of property in the third period, the fraction that applies to the taxpayer for the year is the fraction that is determined by the formula

(2/3 × A + 1/2 × B) / (A + B)

where


is the amount by which the taxpayer’s net capital gains from dispositions of property in the second period exceeds the amount of the taxpayer’s net capital losses from dispositions of property in the first period, and


is the taxpayer’s net capital gains from dispositions of property in the third period,

(xi) where the amount of the taxpayer’s net capital losses from dispositions of property in the second period exceeds the amount of the taxpayer’s net capital gains from dispositions of property in the first period and the taxpayer has net capital losses from dispositions of property in the third period, the fraction that applies to the taxpayer for the year is the fraction that is determined by the formula

(2/3 × A + 1/2 × B) / (A + B)

where


is the amount by which the taxpayer’s net capital losses from dispositions of property in the second period exceeds the amount of the taxpayer’s net capital gains from dispositions of property in the first period, and


is the taxpayer’s net capital losses from dispositions of property in the third period, and

(xii) in any other case, the fraction that applies to the taxpayer for the year is 1/2, and

in determining the fraction that applies to a taxpayer under paragraphs (a) to (e) for the year, the following rules apply:

(f) the net capital gains of the taxpayer from dispositions of property in a period is the amount, if any, by which the taxpayer’s capital gains from dispositions of property in the period exceed the taxpayer’s capital losses from dispositions of property in the period,

(g) the net capital losses of the taxpayer from dispositions of property in a period is the amount, if any, by which the taxpayer’s capital losses from dispositions of property in the period exceed the taxpayer’s capital gains from dispositions of property in the period,

(h) the net amount included as a capital gain of the taxpayer for a taxation year from a disposition to which paragraph 38(a.2) of the Act, as enacted by subsection (3), applies or from a disposition to which paragraph 38(a.1) of the Act, as enacted by subsection (2), applies, is deemed to be equal to one half of the capital gain,

(i) the net amount included as a capital gain of the taxpayer for a taxation year from a disposition of property before the year because of subparagraphs 40(1)(a)(ii) and (iii) of the Act is deemed to be a capital gain of the taxpayer from a disposition of property on the first day of the year,

(j) each capital loss that is a business investment loss shall be determined without reference to subsections 39(9) and (10) of the Act,

(k) where an amount is included in computing the income of the taxpayer for the year because of subsection 80(13) of the Act in respect of a commercial obligation that is settled, the amount that would be determined under that subsection in respect of the obligation, if the value of E in the formula in that subsection were 1, is deemed to be a capital gain of the taxpayer from a disposition of property on the day on which the settlement occurs,

(l) the taxpayer’s capital gains and losses from dispositions of property (other than taxable Canadian property) while the taxpayer is a non-resident are deemed to be nil,

(m) where an election is made by a taxpayer under paragraph 104(21.4)(d) of the Act, as enacted by subsection 78(23), subsection 104(21.5) of the Act, as enacted by subsection 78(23), subsection 130.1(4.4) or (4.5) of the Act, as enacted by subsection 127(4), or subsection 131(1.7) or (1.9) of the Act, as enacted by subsection 128(2), for a year, the portion of the taxpayer’s net capital gains for the year that are to be treated as being in respect of capital gains realized on dispositions of property that occurred in a particular period in the year is that proportion of those net capital gains that the number of days in the particular period is of the number of days in the year,

(n) where the election made under paragraph 104(21.4)(d) of the Act, as enacted by subsection 78(23), or subsection 104(21.5) of the Act, as enacted by subsection 78(23), for the year was made by a personal trust, the portion of the taxpayer’s net capital gains for the year that are to be treated as being in respect of capital gains realized on dispositions of property that occurred in a particular period in the year is that proportion of those net capital gains that the number of days in the particular period is of the number of days that are in all periods in the year in which a net gain was realized,

(o) where an amount is designated under subsection 104(21) of the Act in respect of a beneficiary by a trust in respect of the net taxable capital gains of the trust for a taxation year of the trust and the trust does not elect under paragraph 104(21.4)(d) of the Act, as enacted by subsection 78(23), for the year, the deemed gains of the beneficiary referred to in subsection 104(21.4) of the Act, as enacted by subsection 78(23), are deemed to have been realized in each period in the year in a proportion that is equal to the same proportion that the net capital gains of the trust realized by the trust in that period is of all the net capital gains realized by the trust in the year,

(p) where in the course of administering the estate of a deceased taxpayer, a capital loss from a disposition of property by the legal representative of a deceased taxpayer is deemed under paragraph 164(6)(c) of the Act to be a capital loss of the deceased taxpayer from the disposition of property by the taxpayer in the taxpayer’s last taxation year and not to be a capital loss of the estate, the capital loss is deemed to be from the disposition of a property by the taxpayer immediately before the taxpayer’s death,

(q) each capital gain referred to in paragraph 104(21.4)(a) of the Act, as enacted by subsection 78(23), in respect of a beneficiary, shall be determined as if that paragraph were read without reference to subparagraph 104(21.4)(a)(ii) of the Act,

(r) where no capital gains or losses are realized in a period, the amount of net capital gains or losses for that period is deemed to be nil,

(s) where a net amount is included as a capital gain of a taxpayer for a taxation year because of the granting of an option under subsection 49(1) of the Act, the net amount is deemed to be a capital gain of the taxpayer from a disposition of property on the day on which the option was granted,

(t) where a net amount is included as a capital gain of a corporation for its taxation year under subsection 49(2) of the Act because of the expiration of an option that was granted by the corporation, the net amount is deemed to be a capital gain of the corporation from a disposition of property on the day on which the option expired,

(u) where a net amount is included as a capital gain of a trust for its taxation year under subsection 49(2.1) of the Act because of the expiration of an option that was granted by the trust, the net amount is deemed to be a capital gain of the trust from a disposition of property on the day on which the option expired, and

(v) where a net amount is included as a capital gain of a taxpayer for a taxation year because of subsection 49(3), (3.01) or (3.1) of the Act, the net amount is deemed to be a capital gain of the taxpayer from a disposition of property on the day on which the option was exercised.

(6) Subsection (2) applies to the 2000 and subsequent taxation years except that

(a) for a taxation year of a taxpayer that includes February 28, 2000 or October 17, 2000, the reference to the fraction “1/4” in paragraph 38(a.1) of the Act, as enacted by subsection (2), shall be read as a reference to 1/2 of the fraction in paragraph 38(a) of the Act, as enacted by subsection (1), that applies to the taxpayer for the year;

(a.1) for a taxation year that began after February 28, 2000 and ended before October 17, 2000, the reference to the fraction “1/4” in paragraph 38(a.1) of the Act, as enacted by subsection (2), shall be read as a reference to the fraction “1/3”; and

(b) for a taxation year that ended before February 28, 2000, the reference to the fraction “1/4” in paragraph 38(a.1) of the Act, as enacted by subsection (2), shall be read as a reference to the fraction “3/8”.

(7) Subsection (3) applies to gifts made by a taxpayer after February 27, 2000 except that

(a) if the taxpayer’s taxation year began after February 28, 2000 and ended before October 17, 2000, the reference to the fraction “1/4” in paragraph 38(a.2) of the Act, as enacted by subsection (3), shall be read as a reference to the fraction “1/3”; and

(b) if the taxpayer’s taxation year includes February 28, 2000 or October 17, 2000, the reference to the fraction “1/4” in paragraph 38(a.2) of the Act, as enacted by subsection (3), shall be read as a reference to 1/2 of the fraction in paragraph 38(a) of the Act, as enacted by subsection (1), that applies to the taxpayer for the year.

23. (1) Subparagraphs 39(9)(b)(i) to (i.2) of the Act are replaced by the following:

(i) the total of all amounts each of which is twice the amount deducted by the taxpayer under section 110.6 in computing the taxpayer’s taxable income for a preceding taxation year that

(A) ended before 1988, or

(B) begins after October 17, 2000,

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

(A) 3/2 of the amount deducted under section 110.6 in computing the taxpayer’s taxable income for a preceding taxation year that

(I) ended after 1987 and before 1990, or

(II) began after February 27, 2000 and ended before October 18, 2000, or

(B) the amount determined by multiplying the reciprocal of the fraction in paragraph 38(a) that applies to the taxpayer for each of the taxpayer’s taxation years that includes February 28, 2000 or October 18, 2000 by the amount deducted under section 110.6 in computing the taxpayer’s taxable income for that year, and

(i.2) the total of all amounts each of which is 4/3 of the amount deducted under section 110.6 in computing the taxpayer’s taxable income for a preceding taxation year that ended after 1989 and before February 28, 2000

(2) Subparagraphs 39(10)(b)(i) to (i.2) of the Act are replaced by the following:

(i) the total of all amounts each of which is twice the amount designated by the trust under subsection 104(21.2) in respect of a beneficiary in its return of income for a preceding taxation year that

(A) ended before 1988, or

(B) begins after October 17, 2000,

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

(A) 3/2 of the amount designated by the trust under subsection 104(21.2) in respect of a beneficiary in its return of income for a preceding taxation year that

(I) ended after 1987 and before 1990, or

(II) began after February 27, 2000 and ended before October 18, 2000, or

(B) the amount determined by multiplying the reciprocal of the fraction in paragraph 38(a) that applies to the trust for each of the trust’s taxation years that includes February 28, 2000 or October 18, 2000 by the amount designated by the trust under subsection 104(21.2) in respect of a beneficiary in its return of income for that year, and

(i.2) the total of all amounts each of which is 4/3 of the amount designated by the trust under subsection 104(21.2) in respect of a beneficiary in its return of income for a preceding taxation year that ended after 1989 and before February 28, 2000

(3) Subsection 39(11) of the Act is replaced by the following:

Marginal note:Recovery of bad debt

(11) Where an amount is received in a taxation year on account of a debt (in this subsection referred to as the “recovered amount”) in respect of which a deduction for bad debts had been made under subsection 20(4.2) in computing a taxpayer’s income for a preceding taxation year, the amount, if any, by which 1/2 of the recovered amount exceeds the amount determined under paragraph 12(1)(i.1) in respect of the recovered amount is deemed to be a taxable capital gain of the taxpayer from a disposition of capital property in the year.

(4) Subsections (1) to (3) apply to taxation years that end after February 27, 2000 except that, for taxation years that ended after February 27, 2000 and before October 18, 2000, the reference to the fraction “1/2” in subsection 39(11) of the Act, as enacted by subsection (3), shall be read as a reference to the fraction “2/3”.

24. (1) Paragraphs (a) and (b) of the description of C in the definition “exempt capital gains balance” in subsection 39.1(1) of the Act are replaced by the following:

(a) if the entity is a trust described in any of paragraphs (d) and (h) to (j) of the definition “flow-through entity” in this subsection, the total of

(i) 3/2 of the total of all amounts each of which is the amount by which the individual’s taxable capital gain (determined without reference to this section), for a preceding taxation year that began after February 27, 2000 and ended before October 18, 2000 that resulted from a designation made under subsection 104(21) by the trust, was reduced under subsection (3),

(ii) 4/3 of the total of all amounts each of which is the amount by which the individual’s taxable capital gain (determined without reference to this section), for a preceding taxation year that ended before February 28, 2000 and that resulted from a designation made under subsection 104(21) by the trust, was reduced under subsection (3),

(iii) the amount claimed by the individual under subparagraph 104(21.4)(a)(ii) or (21.7)(b)(ii) for a preceding taxation year, and

(iv) twice the total of all amounts each of which is the amount by which the individual’s taxable capital gain (determined without reference to this section) for a preceding taxation year that began after October 17, 2000 and that resulted from a designation made under subsection 104(21) by the trust, was reduced under subsection (3),

(b) if the entity is a partnership, the total of

(i) 3/2 of the total of

(A) the total of all amounts each of which is the amount by which the individual’s share of the partnership’s taxable capital gains (determined without reference to this section), for its fiscal period that began after February 27, 2000 and ended before October 18, 2000, was reduced under subsection (4), and

(B) the total of all amounts each of which is the amount by which the individual’s share of the partnership’s income from a business (determined without reference to this section), for its fiscal period that began after February 27, 2000 and ended before October 18, 2000, was reduced under subsection (5),

(ii) 4/3 of the total of

(A) the total of all amounts each of which is the amount by which the individual’s share of the partnership’s taxable capital gains (determined without reference to this section), for its fiscal period that ended before February 28, 2000 and in a preceding taxation year was reduced under subsection (4), and

(B) the total of all amounts each of which is the amount by which the individual’s share of the partnership’s income from a business (determined without reference to this section), for its fiscal period that ended before February 28, 2000 and in a preceding taxation year, was reduced under subsection (5),

(iii) the product obtained when the reciprocal of the fraction in paragraph 38(a) that applies to the partnership for its fiscal period that includes February 28, 2000 or October 17, 2000 is multiplied by the total of

(A) the total of all amounts each of which is the amount by which the individual’s share of the partnership’s taxable capital gains (determined without reference to this section), for its fiscal period that includes February 28, 2000 or October 17, 2000 and ended in a preceding taxation year, was reduced under subsection (4), and

(B) the total of all amounts each of which is the amount by which the individual’s share of the partnership’s income from a business (determined without reference to this section), for its fiscal period that includes February 28, 2000 or October 17, 2000 and ended in a preceding taxation year was reduced under subsection (5), and

(iv) twice the total of

(A) the total of all amounts each of which is the amount by which the individual’s share of the partnership’s taxable capital gains (determined without reference to this section), for its fiscal period that began after October 17, 2000 and ended in a preceding taxation year, was reduced under subsection (4), and

(B) the total of all amounts each of which is the amount by which the individual’s share of the partnership’s income from a business (determined without reference to this section), for its fiscal period that began after October 17, 2000 and ended in a preceding taxation year, was reduced under subsection (5), and

(2) Paragraphs (a) and (b) of the description of B in subsection 39.1(2) of the Act are amended by replacing the reference to the expression “4/3 of” with a reference to the word “twice”.

(3) Subsection 39.1(3) of the Act is amended by replacing the reference to the fraction “3/4” with a reference to the fraction “1/2”.

(4) The description of A in subsection 39.1(4) of the Act is amended by replacing the reference to the fraction “3/4” with a reference to the fraction “1/2”.

(5) Subsection 39.1(5) of the Act is replaced by the following:

Marginal note:Reduction in share of partnership’s income from a business

(5) An individual’s share otherwise determined for a taxation year of the income of a partnership from a business for the partnership’s fiscal period that ends in the year and the individual’s share of the partnership’s taxable capital gain, if any, arising under paragraph 14(1)(b) shall be reduced by such amount as the individual claims, not exceeding the lesser of

(a) the amount, if any, by which 1/2 of the individual’s exempt capital gains balance for the year in respect of the partnership exceeds the total of

(i) the amount, if any, claimed under subsection (4) by the individual for the year in respect of the partnership, and

(ii) all amounts, if any, claimed under this subsection by the individual for the year in respect of other businesses of the partnership, and

(b) the amount determined by the formula

A × (B / C)

where


is the amount included under paragraph 14(1)(b) in computing the income of the partnership from the business for the fiscal period,


is the amount that would otherwise be the individual’s share of the partnership’s income from the business for the fiscal period, and


is the partnership’s income from the business for the fiscal period.

(6) Subsection (1) applies to taxation years that end after February 27, 2000.

(7) Subsections (2) to (5) apply to taxation years that end after February 27, 2000 except that, where the taxation year of an entity that ends in the taxpayer’s taxation year includes February 28, 2000 or October 17, 2000, or began after February 28, 2000 and ended before October 17, 2000,

(a) the reference to the word “twice” in paragraphs (a) and (b) of the description of B in subsection 39.1(2) of the Act, as enacted by subsection (2), shall be read as a reference to the expression “the fraction that is the reciprocal of the fraction in paragraph 38(a), as enacted by subsection 22(1) of the Income Tax Amendments Act, 2000, that applies to the entity for its taxation year that ends in the taxpayer’s taxation year, multiplied by”;

(b) the reference to the fraction “1/2” in subsection 39.1(3) of the Act, as enacted by subsection (3), shall be read as a reference to the fraction in paragraph 38(a) of the Act, as enacted by subsection 22(1), that applies to the entity for its taxation year that ends in the taxpayer’s taxation year;

(c) the reference to the fraction “1/2” in the description of A in subsection 39.1(4) of the Act, as enacted by subsection (4), shall be read as reference to the fraction in paragraph 38(a) of the Act, as enacted by subsection 22(1), that applies to the entity for its taxation year that ends in the taxpayer’s taxation year;

(d) the reference to the fraction “1/2” in subsection 39.1(5) of the Act, as enacted by subsection (5), shall be read as reference to the fraction in paragraph 14(1)(b) of the Act, as enacted by subsection 7(1), that applies to the entity for its taxation year that ends in the taxpayer’s taxation year; and

(e) subparagraph 39.1(5)(a)(i) of the Act, as enacted by subsection (5), shall be read as follows:

(i) the amount, if any, claimed under subsection (4) by the individual for the year in respect of the partnership multiplied by the fraction obtained when the fraction in paragraph 14(1)(b) applicable to the entity for its taxation year that ends in the taxpayer’s taxation year is divided by the fraction in paragraph 38(a) that applies to the entity for that taxation year.

25. (1) Clause 40(2)(g)(iv)(A) of the Act is replaced by the following:

(A) a trust governed by a deferred profit sharing plan, an employees profit sharing plan or a registered retirement income fund under which the taxpayer is a beneficiary or immediately after the disposition becomes a beneficiary, or

(2) Paragraph 40(3.14)(a) 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 or misconduct that another member of the partnership or an employee, agent or representative of the partnership commits in the course of the partnership business while the partnership is a limited liability partnership);

(3) Section 40 of the Act is amended by adding the following after subsection (3.6):

Marginal note:Losses of non-resident

(3.7) If an individual disposes of a property at any time after having ceased to be resident in Canada, for the purposes of applying subsections 100(4), 107(1) and 112(3) to (3.32) and (7) in computing the individual’s loss from the disposition,

(a) the individual is deemed to be a corporation in respect of dividends received by the individual, or deemed under Part XIII to have been paid to the individual, at a particular time that is after the time at which the individual last acquired the property and at which the individual was non-resident; and

(b) an amount on account of

(i) each taxable dividend received by the individual at a particular time described in paragraph (a), and

(ii) each amount deemed under Part XIII to have been paid to the individual at a particular time described in paragraph (a), as a dividend from a corporation resident in Canada, to the extent that the amount can reasonably be considered to relate to the property,

is deemed to be a taxable dividend that was received by the individual and that was deductible under section 112 in computing the individual’s taxable income or taxable income earned in Canada for the taxation year that includes that particular time.

(4) The portion of subsection 40(9) of the Act before the formula is replaced by the following:

Marginal note:Additions to taxable Canadian property

(9) If a non-resident person disposes of a taxable Canadian property

(a) that the person last acquired before April 27, 1995,

(b) that would not be a taxable Canadian property immediately before the disposition if section 115 were read as it applied to dispositions that occurred on April 26, 1995, and

(c) that would be a taxable Canadian property immediately before the disposition if section 115 were read as it applied to dispositions that occurred on January 1, 1996,

the person’s gain or loss from the disposition is deemed to be the amount determined by the formula

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

(6) Subsection (2) applies after 1997.

(7) Subsection (3) applies to dispositions after December 23, 1998 by individuals who cease to be resident in Canada after October 1, 1996.

(8) Subsection (4) applies to dispositions that occur after April 26, 1995.

26. (1) Subsection 41(1) of the Act is amended by replacing the reference to the fraction “3/4” with a reference to the fraction “1/2”.

(2) Subsection (1) applies to taxation years that end after February 27, 2000 except that, for taxation years that include February 28, 2000 or October 17, 2000, or began after February 28, 2000 and ended before October 17, 2000, the reference to the fraction “1/2” in subsection 41(1) of the Act, as enacted by subsection (1), shall be read as a reference to the fraction in paragraph 38(a) of the Act, as enacted by subsection 22(1), that applies to the taxpayer for the year.

27. (1) Section 43 of the Act is replaced by the following:

Marginal note:General rule for part dispositions

43. (1) For the purpose of computing a taxpayer’s gain or loss for a taxation year from the disposition of part of a property, the adjusted cost base to the taxpayer, immediately before the disposition, of that part is the portion of the adjusted cost base to the taxpayer at that time of the whole property that can reasonably be regarded as attributable to that part.

Marginal note:Ecological gifts

(2) For the purposes of subsection (1) and section 53, where at any time a taxpayer disposes of a servitude, covenant or easement to which land is subject 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 servitude, covenant or easement, as the case may be, is deemed to be equal to the amount determined by the formula

A × B / C

where


is the adjusted cost base to the taxpayer of the land immediately before the disposition,


is the amount determined under subsection 110.1(5) or 118.1(12) in respect of the disposition, and


is the fair market value of the land immediately before the disposition; and

(b) for greater certainty, the cost to the taxpayer of the land shall be reduced at the time of the disposition by the amount determined under paragraph (a).

Marginal note:Payments out of trust income, etc.

(3) Notwithstanding subsection (1), where part of a capital interest of a taxpayer in a trust would, but for paragraph (h) or (i) of the definition “disposition” in subsection 248(1), be disposed of solely because of the satisfaction of a right to enforce payment of an amount by the trust, no part of the adjusted cost base to the taxpayer of the taxpayer’s capital interest in the trust shall be allocated to that part of the capital interest.

(2) Subsection 43(1) of the Act, as enacted by subsection (1), applies after February 27, 1995.

(3) Subsection 43(2) of the Act, as enacted by subsection (1), applies in respect of gifts made after February 27, 1995.

(4) Subsection 43(3) of the Act, as enacted by subsection (1), applies to satisfactions of rights that occur after 1999.

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

Marginal note:Exchanges of property

44. (1) Where at any time in a taxation year (in this subsection referred to as the “initial year”) an amount has become receivable by a taxpayer as proceeds of disposition of a capital property that is not a share of the capital stock of a corporation (which capital property is in this section referred to as the taxpayer’s “former property”) that is either

(2) Subsection (1) applies to shares disposed of after April 15, 1999, other than shares disposed of after that date as a consequence of a public takeover bid or offer filed with a public authority before April 16, 1999.

29. (1) The Act is amended by adding the following after section 44:

Marginal note:Definitions

44.1 (1) The definitions in this subsection apply in this section.

“ACB reduction”

« réduction du prix de base rajusté »

“ACB reduction” of an individual in respect of a replacement share of the individual in respect of a qualifying disposition of the individual means the amount determined by the formula

D × (E / F)

where


is the permitted deferral of the individual in respect of the qualifying disposition;


is the qualifying cost to the individual of the replacement share; and


is the qualifying cost to the individual of all the replacement shares of the individual in respect of the qualifying disposition.

“active business corporation”

« société exploitant activement une entreprise »

“active business corporation” at any time means, subject to subsection (10), a corporation that is, at that time, a taxable Canadian corporation all or substantially all of the fair market value of the assets of which at that time is attributable to assets of the corporation that are

(a) assets used principally in an active business carried on by the corporation or by an active business corporation that is related to the corporation;

(b) shares issued by or debt owing by other active business corporations that are related to the corporation; or

(c) a combination of assets described in paragraphs (a) and (b).

“carrying value”

« valeur comptable »

“carrying value” of the assets of a corporation at any time means the amount at which the assets of the corporation would be valued for the purpose of the corporation’s balance sheet as of that time if that balance sheet were prepared in accordance with generally accepted accounting principles used in Canada at that time, except that an asset of a corporation that is a share or debt issued by a related corporation is deemed to have a carrying value of nil.

“common share”

« action ordinaire »

“common share” means a share prescribed for the purpose of paragraph 110(1)(d).

“eligible pooling arrangement”

« arrangement admissible de mise en commun »

“eligible pooling arrangement” in respect of an individual means an agreement in writing made between the individual and another person or partnership (which other person or partnership is referred to in this definition and subsection (3) as the “investment manager”) where the agreement provides for

(a) the transfer of funds or other property by the individual to the investment manager for the purpose of making investments on behalf of the individual;

(b) the purchase of eligible small business corporation shares with those funds, or the proceeds of a disposition of the other property, within 60 days after receipt of those funds or the other property by the investment manager; and

(c) the provision of a statement of account to the individual by the investment manager at the end of each month that ends after the transfer disclosing the details of the investment portfolio held by the investment manager on behalf of the individual at the end of that month and the details of the transactions made by the investment manager on behalf of the individual during the month.

“eligible small business corporation”

« société admissible exploitant une petite entreprise »

“eligible small business corporation” at any time means, subject to subsection (10), a corporation that, at that time, is a Canadian-controlled private corporation all or substantially all of the fair market value of the assets of which at that time is attributable to assets of the corporation that are

(a) assets used principally in an active business carried on primarily in Canada by the corporation or by an eligible small business corporation that is related to the corporation;

(b) shares issued by or debt owing by other eligible small business corporations that are related to the corporation; or

(c) a combination of assets described in paragraphs (a) and (b).

“eligible small business corporation share”

« action déterminée de petite entreprise »

“eligible small business corporation share” of an individual means a common share issued by a corporation to the individual if

(a) at the time the share was issued, the corporation was an eligible small business corporation; and

(b) immediately before and after the share was issued, the total carrying value of the assets of the corporation and corporations related to it did not exceed $50,000,000.

“permitted deferral”

« montant de report autorisé »

“permitted deferral” of an individual in respect of a qualifying disposition of the individual means the amount determined by the formula

(G / H) × I

where


is the lesser of the amount included in the description of H and the total of all amounts each of which is the qualifying cost to the individual of a replacement share in respect of the qualifying disposition;


is the qualifying portion of the individual’s proceeds of disposition from the qualifying disposition; and


is the qualifying portion of the individual’s capital gain from the qualifying disposition.

“qualifying cost”

« coût admissible »

“qualifying cost” to an individual of particular replacement shares of the individual in respect of a qualifying disposition of the individual that are shares of the capital stock of a particular eligible small business corporation means the lesser of

(a) the total of all amounts each of which is the cost to the individual of such a replacement share; and

(b) the amount by which $2,000,000 exceeds the total of all amounts each of which is the cost to the individual of a share that was a share of the capital stock of the particular eligible small business corporation or of a corporation related to it at the time the particular replacement shares were acquired and that was a replacement share of the individual in respect of another qualifying disposition.

“qualifying disposition”

« disposition admissible »

“qualifying disposition” of an individual (other than a trust) means, subject to subsection (9), a disposition of shares of the capital stock of a corporation where each such share disposed of was

(a) an eligible small business corporation share of the individual;

(b) throughout the period during which the individual owned the share, a common share of an active business corporation; and

(c) throughout the 185-day period that ended immediately before the disposition of the share, owned by the individual.

“qualifying portion of a capital gain”

« partie admissible d’un gain en capital »

“qualifying portion of a capital gain” of an individual from a particular qualifying disposition of the individual means the amount determined by the formula

J × (1 – (K / L))

where


is the individual’s capital gain from the particular qualifying disposition, determined without reference to this section;


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

(a) the total of all amounts each of which is the adjusted cost base to the individual of a share of a particular corporation that was the subject of the particular qualifying disposition (which adjusted cost base shall be determined immediately before the share was disposed of and without reference to this section), and

(b) the total of all amounts each of which is the adjusted cost base to the individual of a share of the particular corporation or a corporation related to it at the time of the particular qualifying disposition that was the subject of another qualifying disposition (in respect of which a permitted deferral was deducted under this section by the individual) that occurred at or before the time of the particular qualifying disposition (which adjusted cost base shall be determined immediately before the share was disposed of and without reference to this section)

exceeds

(c) $2,000,000; and


is the total of all amounts each of which is the adjusted cost base to the individual of a share of the particular corporation that was the subject of the particular qualifying disposition (which adjusted cost base shall be determined immediately before the share was disposed of and without reference to this section).

“qualifying portion of the proceeds of disposition”

« partie admissible du produit de disposition »

“qualifying portion of the proceeds of disposition” of an individual from a qualifying disposition means the amount determined by the formula

M × (N / O)

where


is the individual’s proceeds of disposition from the qualifying disposition;


is the individual’s qualifying portion of the capital gain from the qualifying disposition; and


is the individual’s capital gain from the qualifying disposition, determined without reference to this section.

“replacement share”

« action de remplacement »

“replacement share” of an individual in respect of a qualifying disposition of the individual in a taxation year means an eligible small business corporation share of the individual that is

(a) acquired by the individual in the year or within 60 days after the end of the year, but not later than 120 days after the qualifying disposition occurred; and

(b) designated by the individual in the individual’s return of income for the year to be a replacement share in respect of the qualifying disposition.

Marginal note:Capital gain deferral

(2) Where an individual has made a qualifying disposition in a taxation year,

(a) the individual’s capital gain for the year from the qualifying disposition is deemed to be the amount by which the individual’s capital gain for the year from the qualifying disposition, determined without reference to this section, exceeds the individual’s permitted deferral in respect of the qualifying disposition;

(b) in computing the adjusted cost base to the individual of a replacement share of the individual in respect of the qualifying disposition at any time after its acquisition, there shall be deducted the amount of the ACB reduction of the individual in respect of the replacement share; and

(c) where the qualifying disposition was a disposition of a share that was a taxable Canadian property of the individual, the replacement share of the individual in respect of the qualifying disposition is deemed to be taxable Canadian property of the individual.

Marginal note:Special rule — re eligible pooling arrangements

(3) Except for the purpose of the definition “eligible pooling arrangement” in subsection (1), any transaction entered into by an investment manager under an eligible pooling arrangement on behalf of an individual is deemed to be a transaction of the individual and not a transaction of the investment manager.

Marginal note:Special rule — re acquisitions on death

(4) For the purpose of this section, a share of the capital stock of a corporation, acquired by an individual as a consequence of the death of a person who is the individual’s spouse, common-law partner or parent, is deemed to be a share that was acquired by the individual at the time it was acquired by that person and owned by the individual throughout the period that it was owned by that person, if

(a) where the person was the spouse or common-law partner of the individual, the share was an eligible small business share of the person and subsection 70(6) applied to the individual in respect of the share; or

(b) where the person was the individual’s parent, the share was an eligible small business share of the parent and subsection 70(9.2) applied to the individual in respect of the share.

Marginal note:Special rule — re breakdown of relationships

(5) For the purpose of this section, a share of the capital stock of a corporation, acquired by an individual from a person who was the individual’s former spouse or common-law partner as a consequence of the settlement of rights arising out of their marriage or common-law partnership, is deemed to be a share that was acquired by the individual at the time it was acquired by that person and owned by the individual throughout the period that it was owned by that person if the share was an eligible small business share of the person and subsection 73(1) applied to the individual in respect of the share.

Marginal note: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 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 of shares issued 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) paragraph 85(1)(h) or subsection 85.1(3) or 87(4) applied to the individual in respect of the new shares; and

(b) the individual’s total proceeds of disposition of the exchanged shares was equal to the total of all amounts each of which was the individual’s adjusted cost base of an exchanged share immediately before the disposition.

Marginal note: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 corporation (in this subsection referred to as the “new shares”) as the sole consideration for the disposition of common shares 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) paragraph 85(1)(h) or subsection 85.1(3) or 87(4) applied to the individual in respect of the new shares;

(b) the total of the individual’s proceeds of disposition in respect of the disposition of the exchanged shares was equal to the total of the individual’s adjusted cost bases immediately before the disposition of such shares; and

(c) the disposition of the exchanged shares was a qualifying disposition of the individual.

Marginal note:Special rule — re carrying on an active business

(8) For the purpose of the definitions in subsection (1), a property held at any particular time by a corporation that would, if this Act were read without reference to this subsection, be considered to carry on an active business at that time, is deemed to be used or held by the corporation in the course of carrying on that active business if the property (or other property for which the property is substituted property) was acquired by the corporation, at any time in the 36-month period ending at the particular time, because the corporation

(a) issued a debt or a share of a class of its capital stock in order to acquire money for the purpose of acquiring property to be used in or held in the course of, or making expenditures for the purpose of, earning income from an active business carried on by it;

(b) disposed of property used or held by it in the course of carrying on an active business in order to acquire money for the purpose of acquiring property to be used in or held in the course of, or making expenditures for the purpose of, earning income from an active business carried on by it; or

(c) accumulated income derived from an active business carried on by it in order to acquire property to be used in or held in the course of, or to make expenditures for the purpose of, earning income from an active business carried on by it.

Marginal note:Special rule — re qualifying disposition

(9) A disposition of a common share of an active business corporation (in this subsection referred to as the “subject share”) by an individual that, but for this subsection, would be a qualifying disposition of the individual is deemed not to be a qualifying disposition of the individual unless the active business of the corporation referred to in paragraph (a) of the definition “active business corporation” in subsection (1) was carried on primarily in Canada

(a) at all times in the period that began at the time the individual last acquired the subject share and ended at the time of disposition, if that period is less than 730 days; or

(b) in any other case, for at least 730 days in the period referred to in paragraph (a).

Marginal note:Special rule — re exceptions

(10) For the purpose of this section, an eligible small business corporation and an active business corporation at any time do not include a corporation that is, at that time,

(a) a professional corporation;

(b) a specified financial institution;

(c) a corporation the principal business of which is the leasing, rental, development or sale, or any combination of those activities, of real property owned by it; or

(d) a corporation more than 50 per cent of the fair market value of the property of which (net of debts incurred to acquire the property) is attributable to real property.

Marginal note:Determination rule

(11) In determining whether a share owned by an individual is an eligible small business corporation share of the individual, this Act shall be read without reference to section 48.1.

Marginal note:Anti-avoidance rule

(12) The permitted deferral of an individual in respect of a qualifying disposition of shares issued by a corporation (in this subsection referred to as “new shares”) is deemed to be nil where

(a) the new shares (or shares for which the new shares are substituted property) were issued to the individual or a person related to the individual as part of a series of transactions or events in which

(i) shares of the capital stock of a corporation (in this subsection referred to as the “old shares”) were disposed of by the individual or a person related to the individual, or

(ii) the paid-up capital of old shares or the adjusted cost base to the individual or to a person related to the individual of the old shares was reduced;

(b) the new shares (or shares for which the new shares are substituted property) were issued by the corporation that issued the old shares or were issued by a corporation that, at or immediately after the time of issue of those shares, was a corporation that was not dealing at arm’s length with the corporation that issued the old shares; and

(c) it is reasonable to conclude that one of the main reasons for the series of transactions or events or a transaction in the series was to permit the individual, persons related to the individual, or the individual and persons related to the individual to become eligible to deduct under subsection (2) permitted deferrals in respect of qualifying dispositions of new shares (or shares substituted for the new shares) the total of which would exceed the total that those persons would have been eligible to deduct under subsection (2) in respect of permitted deferrals in respect of qualifying dispositions of old shares.

(2) Subsection (1) applies to dispositions that occur after February 27, 2000 except that, for dispositions that occurred after February 27, 2000 and before October 18, 2000,

(a) the definition “active business corporation” in subsection 44.1(1) of the Act, as enacted by subsection (1), shall be read without reference to the words “subject to subsection (10)” and as if the reference to the words “carried on” in paragraph (a) of that definition were read as a reference to “carried on primarily in Canada”;

(b) the definition “eligible small business corporation” in subsection 44.1(1) of the Act, as enacted by subsection (1), shall be read without reference to the words “subject to subsection (10)”;

(c) the definition “eligible small business corporation share” in subsection 44.1(1) of the Act, as enacted by subsection (1), shall be read as follows:

“eligible small business corporation share”

“eligible small business corporation share” of an individual means a common share issued by a corporation to the individual if

(a) at the time the share was issued, the corporation was an eligible small business corporation;

(b) immediately before the share was issued, the total carrying value of the assets of the corporation and corporations related to it did not exceed $2,500,000; and

(c) immediately after the share was issued, the total carrying value of the assets of the corporation and corporations related to it did not exceed $10,000,000.

(d) the definition “qualifying cost” in subsection 44.1(1) of the Act, as enacted by subsection (1), shall be read as if the reference to “$2,000,000” in paragraph (b) of that definition were read as a reference to “$500,000”;

(e) the definition “qualifying disposition” in subsection 44.1(1) of the Act, as enacted by subsection (1), shall be read without reference to the words “subject to subsection (9)”;

(f) the definition “qualifying portion of a capital gain” in subsection 44.1(1) of the Act, as enacted by subsection (1), shall be read as if the reference to “$2,000,000” in paragraph (c) of the description of K in that definition were read as a reference to “$500,000”; and

(g) section 44.1 of the Act, as enacted by subsection (1), shall be read without reference to subsections 44.1(9) and (10) of the Act, as enacted by subsection (1).

30. (1) Subsection 45(1) of the Act is amended by striking out the word “and” at the end of paragraph (b), by adding the word “and” at the end of paragraph (c) and by adding the following after paragraph (c):

(d) in applying this subsection in respect of a non-resident taxpayer, a reference to “gaining or producing income” shall be read as a reference to “gaining or producing income from a source in Canada”.

(2) Subsection (1) applies after October 1, 1996.

31. (1) The portion of subsection 46(1) of the Act before paragraph (a) is replaced by the following:

Marginal note:Personal-use property

46. (1) Where a taxpayer has disposed of a personal-use property (other than an excluded property disposed of in circumstances to which subsection 110.1(1), or the definition “total charitable gifts”, “total cultural gifts” or “total ecological gifts” in subsection 118.1(1), applies) of the taxpayer, for the purposes of this subdivision

(2) The portion of subsection 46(2) of the Act before paragraph (a) is replaced by the following:

Marginal note:Where part only of property disposed of

(2) Where a taxpayer has disposed of part of a personal-use property (other than a part of an excluded property disposed of in circumstances to which subsection 110.1(1), or the definition “total charitable gifts”, “total cultural gifts” or “total ecological gifts” in subsection 118.1(1), applies) owned by the taxpayer and has retained another part of the property, for the purposes of this subdivision

(3) Section 46 of the Act is amended by adding the following after subsection (4):

Marginal note:Excluded property

(5) For the purpose of this section, “excluded property” of a taxpayer means property acquired by the taxpayer, or by a person with whom the taxpayer does not deal at arm’s length, in circumstances in which it is reasonable to conclude that the acquisition of the property relates to an arrangement, plan or scheme that is promoted by another person or partnership and under which it is reasonable to conclude that the property will be the subject of a gift to which subsection 110.1(1), or the definition “total charitable gifts”, “total cultural gifts” or “total ecological gifts” in subsection 118.1(1), applies.

(4) Subsections (1) to (3) apply to property acquired after February 27, 2000.

32. (1) Section 47 of the Act is amended by adding the following after subsection (2):

Marginal note:Securities acquired by employee

(3) For the purpose of subsection (1), a security (within the meaning assigned by subsection 7(7)) acquired by a taxpayer after February 27, 2000 is deemed not to be identical to any other security acquired by the taxpayer if

(a) the security is acquired in circumstances to which any of subsections 7(1.1), (1.5) or (8) or 147(10.1) applies; or

(b) the security is a security to which subsection 7(1.31) applies.

(2) Subsection (1) applies after 1999.

33. (1) Subparagraph 48.1(1)(a)(ii) of the Act is replaced by the following:

(ii) immediately after that time, ceases to be a small business corporation because a class of its or another corporation’s shares is listed on a prescribed stock exchange, and

(2) Subsection (1) applies to corporations that cease to be small business corporations after 1999.

(3) Where a corporation ceases to be a Canadian-controlled private corporation in a taxation year solely because of the application of subsection 113(2) of this Act, an election under subsection 48.1(1) of the Act, as enacted by subsection (1), that is made by an individual in respect of the 1999 or 2000 taxation year is deemed to have been made on time if the election is made on or before the individual’s filing-due date for the taxation year in which this Act receives royal assent.

34. (1) Paragraph 49(5)(b) of the Act is replaced by the following:

(b) for the purposes of subsections (2) to (4) and subparagraph (b)(iv) of the definition “disposition” in subsection 248(1), the original option and each extension or renewal of it is deemed to be the same option; and

(2) Subsection (1) applies to options granted after December 23, 1998.

35. (1) Subsections 52(1) and (1.1) of the Act are replaced by the following:

Marginal note:Cost of certain property the value of which included in income

52. (1) Where

(a) a taxpayer acquired property after 1971 (other than an annuity contract, a right as a beneficiary under a trust to enforce payment of an amount by the trust to the taxpayer, property acquired in circumstances to which subsection (2) or (3) applies or property acquired from a trust in satisfaction of all or part of the taxpayer’s capital interest in the trust), and

(b) an amount in respect of its value was

(i) included, otherwise than under section 7, in computing

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

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

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

for the purposes of this subdivision, the amount so included shall be added in computing the cost to the taxpayer of the property, except to the extent that the amount was otherwise added to the cost or included in computing the adjusted cost base to the taxpayer of the property.

(2) Subsection 52(6) of the Act is repealed.

(3) Subsection (1) applies after 1999 except that, in respect of property acquired before 2000 and disposed of before March 2000, paragraph 52(1)(a) of the Act, as enacted by that subsection, shall be read as follows:

(a) a taxpayer acquired property after 1971 (other than an annuity contract or property acquired as described in subsection (2), (3) or (6)), and

(4) Subsection (2) applies after 1999, but not to rights that were acquired before 2000 and disposed of before March 2000.

36. (1) Clauses 53(1)(e)(i)(A) and (A.1) of the Act are replaced by the following:

(A) the fractions set out in subsection 14(5), paragraphs 38(a) to (a.2), subsection 41(1) and in the formula in paragraph 14(1)(b),

(A.1) paragraph 18(1)(l.1),

(A.2) the description of C in the formula in paragraph 14(1)(b), and

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

Marginal note:Share or fund unit taxed as stock option benefit

(j) if the property is a security (within the meaning assigned by subsection 7(7)) and, in respect of its acquisition by the taxpayer, a benefit was deemed by section 7 to have been received in any taxation year that ends after 1971 and begins before that time by the taxpayer or by a person that did not deal at arm’s length with the taxpayer or, if the security was acquired after February 27, 2000, would have been so deemed if section 7 were read without reference to subsections 7(1.1) and (8), the amount of the benefit that was, or would have been, so deemed to have been received;

(3) Subparagraph (ii) of the description of A in paragraph 53(1)(r) of the Act is amended by replacing the reference to the expression “4/3 of” with a reference to the word “twice”.

(4) Paragraph 53(2)(a) of the Act is amended by striking out the word “and” at the end of subparagraph (iii), by adding the word “and” at the end of subparagraph (iv) and by adding the following after subparagraph (iv):

(v) any amount required by paragraph 44.1(2)(b) to be deducted in computing the adjusted cost base to the taxpayer of the share;

(5) Clauses 53(2)(c)(i)(A) and (A.1) of the Act are replaced by the following:

(A) the fractions set out in subsection 14(5), paragraph 38(b) and in the formula in paragraph 14(1)(b),

(A.1) paragraph 18(1)(l.1),

(A.2) the description of C in the formula in paragraph 14(1)(b),

(6) Clause 53(2)(c)(ii)(B) of the Act is replaced by the following:

(B) the Canadian exploration and development expenses and foreign resource pool expenses, if any, incurred by the partnership in the fiscal period,

(7) The portion of paragraph 53(2)(h) of the Act before subparagraph (i) is replaced by the following:

(h) where the property is a capital interest of the taxpayer in a trust (other than an interest in a personal trust that has never been acquired for consideration or an interest of a taxpayer in a trust described in any of paragraphs (a) to (e.1) of the definition “trust” in subsection 108(1)),

(8) Subclause 53(2)(h)(i.1)(B)(I) of the Act is amended by striking out the reference to the expression “1/3 of”.

(9) The portion of paragraph 53(2)(i) of the Act before subparagraph (i) is replaced by the following:

(i) where the property is a capital interest in a trust (other than a unit trust) not resident in Canada that was purchased after 1971 and before that time by the taxpayer from a non-resident person at a time (in this paragraph referred to as the “purchase time”) when the property was not taxable Canadian property and the fair market value of such of the trust property as was

(10) The portion of paragraph 53(2)(i) of the Act after subparagraph (v) is replaced by the following:

was not less than 50% of the fair market value of all the trust property, that proportion of the amount, if any, by which

(vi) the fair market value at the purchase time of such of the trust properties as were properties described in any of subparagraphs (i) to (v)

exceeds

(vii) the total of the cost amounts to the trust at the purchase time of such of the trust properties as were properties described in any of subparagraphs (i) to (v),

that the fair market value at the purchase time of the interest is of the fair market value at the purchase time of all capital interests in the trust;

(11) The portion of paragraph 53(2)(j) of the Act before subparagraph (i) is replaced by the following:

(j) where the property is a unit of a unit trust not resident in Canada that was purchased after 1971 and before that time by the taxpayer from a non-resident person at a time (in this paragraph referred to as the “purchase time”) when the property was not taxable Canadian property and the fair market value of such of the trust property as was

(12) The portion of paragraph 53(2)(j) of the Act after subparagraph (v) is replaced by the following:

was not less than 50% of the fair market value of all the trust property, that proportion of the amount, if any, by which

(vi) the fair market value at the purchase time of such of the trust properties as were properties described in any of subparagraphs (i) to (v)

exceeds

(vii) the total of the cost amounts to the trust at the purchase time of such of the trust properties as were properties described in any of subparagraphs (i) to (v),

that the fair market value at the purchase time of the unit is of the fair market value at the purchase time of all the issued units of the trust;

(13) Subsection 53(3) of the Act is repealed.

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

Marginal note:Recomputation of adjusted cost base on transfers and deemed dispositions

(4) Where 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), (2.1)(a), (4)(d) or (5)(a), 107.4(3)(a) or 111(4)(e) or section 128.1,

(15) Subsections (1) and (5) apply in respect of fiscal periods that end after February 27, 2000 and, for fiscal periods that ended after February 18, 1997 and before February 28, 2000, clause 53(1)(e)(i)(A) of the Act, as enacted by subsection (1), shall be read as follows:

(A) the fractions set out in subsection 14(5), paragraphs 38(a) and (a.1) and subsection 41(1),

(16) Subsection (2) applies after 1999.

(17) Subsection (3) applies to taxation years that end after February 27, 2000 except that, in applying paragraph 53(1)(r) of the Act, as enacted by subsection (3), for those years in respect of a taxpayer’s interest in an entity, where a taxation year of the entity that includes February 28, 2000 or October 17, 2000, or began after February 28, 2000 and ended before October 17, 2000, ends in the taxpayer’s taxation year, the reference to the word “twice” in subparagraph (ii) of the description of A in that paragraph shall be read as a reference to the expression “the fraction that is the reciprocal of the fraction in paragraph 38(a), as enacted by subsection 22(1) of the Income Tax Amendments Act, 2000, that applies in respect of the entity for its taxation year, multiplied by”.

(18) Subsection (4) applies to dispositions that occur after February 27, 2000.

(19) Subsection (6) applies to taxation years that begin after 2000.

(20) Subsection (7) applies to amounts that become payable after 1999.

(21) Subsection (8) applies to taxation years that end after February 27, 2000 except that, in applying subclause 53(2)(h)(i.1)(B)(I) of the Act, as enacted by subsection (8), for those years in respect of a taxpayer’s interest in a trust, where a taxation year of the trust that includes February 28, 2000 or October 17, 2000, or began after February 28, 2000 and ended before October 17, 2000, ends in the taxpayer’s taxation year, the reference to the expression “that is equal to the” in that subclause shall be read as a reference to the expression “that is equal to the fraction obtained when 1 is subtracted from the reciprocal of the fraction in paragraph 38(a), as enacted by subsection 22(1) of the Income Tax Amendments Act, 2000, that applies to the trust for its taxation year, multiplied by”.

(22) Subsections (9) to (12) apply for the purpose of computing the adjusted cost base of property after April 26, 1995.

(23) Subsection (13) applies after October 1, 1996.

(24) Subsection (14) applies to the 1998 and subsequent taxation years.

37. (1) The definition “disposition” in section 54 of the Act is repealed.

(2) Paragraph (c) of the definition “principal residence” in section 54 of the Act is replaced by the following:

(c) where the taxpayer is an individual other than a personal trust, unless the particular property was designated by the taxpayer in prescribed form and manner to be the taxpayer’s principal residence for the year and no other property has been designated for the purposes of this definition for the year

(i) where the year is before 1982, by the taxpayer, or

(ii) where the year is after 1981,

(A) by the taxpayer,

(B) by a person who was throughout the year the taxpayer’s spouse or common-law partner (other than a spouse or common-law partner who was throughout the year living apart from, and was separated under a judicial separation or written separation agreement from, the taxpayer),

(C) by a person who was the taxpayer’s child (other than a child who was at any time in the year a married person, a person who is in a common-law partnership or 18 years of age or older), or

(D) where the taxpayer was not at any time in the year a married person, a person who is in a common-law partnership or 18 years of age or older, by a person who was the taxpayer’s

(I) mother or father, or

(II) brother or sister, where that brother or sister was not at any time in the year a married person, a person who is in a common-law partnership or 18 years of age or older,

(3) Subsection (1) applies to transactions and events that occur after December 23, 1998.

(4) Subsection (2) applies to dispositions that occur after 1990 except that clauses (c)(ii)(B) to (D) of the definition “principal residence” in section 54 of the Act, as enacted by subsection (2), shall be read without reference to “or common-law partner” and “a person who is in a common-law partnership” in their application to dispositions made by a taxpayer that occur in a taxation year that is before 2001 and

(a) before 1998; or

(b) after 1997, unless a valid election is made by the taxpayer under section 144 of the Modernization of Benefits and Obligations Act, that that Act apply to the taxpayer in respect of one or more taxation years that include the year.

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

“specified corporation”

« société déterminée »

“specified corporation” in relation to a distribution means a distributing corporation

(a) that is a public corporation or a specified wholly-owned corporation of a public corporation,

(b) shares of the capital stock of which are exchanged for shares of the capital stock of another corporation (referred to in this definition and subsection (3.02) as an “acquiror”) in an exchange to which the definition “permitted exchange” in this subsection would apply if that definition were read without reference to paragraph (a) and subparagraph (b)(ii) of that definition,

(c) that does not make a distribution, to a corporation that is not an acquiror, after 1998 and before the day that is three years after the day on which the shares of the capital stock of the distributing corporation are exchanged in a transaction described in paragraph (b), and

(d) no acquiror in relation to which makes a distribution after 1998 and before the day that is three years after the day on which the shares of the capital stock of the distributing corporation are exchanged in a transaction described in paragraph (b),

and, for the purposes of paragraphs (c) and (d),

(e) a corporation that is formed by an amalgamation of two or more other corporations is deemed to be the same corporation as, and a continuation of, each of the other corporations, and

(f) where there has been a winding-up of a corporation to which subsection 88(1) applies, the parent is deemed to be the same corporation as, and a continuation of, the subsidiary;

“specified wholly-owned corporation”

« filiale à cent pour cent déterminée »

“specified wholly-owned corporation” of a public corporation means a corporation all of the outstanding shares of the capital stock of which (other than directors’ qualifying shares and shares of a specified class) are held by

(a) the public corporation,

(b) a specified wholly-owned corporation of the public corporation, or

(c) any combination of corporations described in paragraph (a) or (b).

(2) Section 55 of the Act is amended by adding the following after subsection (3.01):

Marginal note:Distribution by a specified corporation

(3.02) For the purposes of the definition “distribution” in subsection (1), where the transfer referred to in that definition is by a specified corporation to an acquiror described in the definition “specified corporation” in subsection (1), the references in the definition “distribution” to

(a) “each type of property” shall be read as “property”; and

(b) “property of that type” shall be read as “property”.

(3) Paragraph 55(5)(b) of the Act is amended by striking out the word “and” at the end of subparagraph (ii) and by replacing subparagraph (iii) with the following:

(iii) the total of all amounts each of which is an amount required to have been included under this subparagraph as it read in its application to a taxation year that ended before February 28, 2000,

(iv) the amount, if any, by which

(A) 1/2 of the total of all amounts each of which is an amount required by paragraph 14(1)(b) to be included in computing the corporation’s income in respect of a business carried on by the corporation for a taxation year that is included in the period and that ended after February 27, 2000 and before October 18, 2000,

exceeds

(B) where the corporation has deducted an amount under subsection 20(4.2) in respect of a debt established by it to have become a bad debt in a taxation year that is included in the period and that ended after February 27, 2000 and before October 18, 2000, or has an allowable capital loss for such a year because of the application of subsection 20(4.3), the amount determined by the formula

V + W

where


is 1/2 of the value determined for A under subsection 20(4.2) in respect of the corporation for the last such taxation year that ended in the period, and


is 1/3 of the value determined for B under subsection 20(4.2) in respect of the corporation for the last such taxation year that ended in the period, and

(C) in any other case, nil, and

(v) the amount, if any, by which

(A) the total of all amounts each of which is an amount required by paragraph 14(1)(b) to be included in computing the corporation’s income in respect of a business carried on by the corporation for a taxation year that is included in the period and that ends after October 17, 2000,

exceeds

(B) where the corporation has deducted an amount under subsection 20(4.2) in respect of a debt established by it to have become a bad debt in a taxation year that is included in the period and that ends after October 17, 2000, or has an allowable capital loss for such a year because of the application of subsection 20(4.3), the amount determined by the formula

X + Y

where


is the value determined for A under subsection 20(4.2) in respect of the corporation for the last such taxation year that ended in the period, and


is 1/3 of the value determined for B under subsection 20(4.2) in respect of the corporation for the last such taxation year that ended in the period, and

(C) in any other case, nil;

(4) The portion of paragraph 55(5)(e) of the French version of the Act before subparagraph (i) is replaced by the following:

e) pour déterminer si des personnes sont liées entre elles, si une personne est un actionnaire déterminé d’une société et si le contrôle d’une société a été acquis par une personne ou un groupe de personnes, les règles suivantes s’appliquent :

(5) Subparagraph 55(5)(e)(iv) of the Act is replaced by the following:

(iv) this Act shall be read without reference to subsection 251(3) and paragraph 251(5)(b); and

(6) Subsections (1) and (2) apply to transfers that occur after 1998.

(7) Subsection (3) applies in respect of taxation years that end after February 27, 2000.

(8) Subsections (4) and (5) apply to dividends that are received after November 1999, other than dividends received as part of a transaction or event, or a series of transactions or events, that was required before December 1, 1999 to be carried out pursuant to a written agreement made before that day.

39. (1) The portion of paragraph 56(1)(n) of the Act after subparagraph (i) is replaced by the following:

exceeds

(ii) the taxpayer’s scholarship exemption for the year computed under subsection (3);

(2) Section 56 of the Act is amended by adding the following after subsection (2):

Marginal note:Exemption for scholarships, fellowships, bursaries and prizes

(3) For the purpose of subparagraph (1)(n)(ii), a taxpayer’s scholarship exemption for a taxation year is the greatest of

(a) $500,

(b) the lesser of

(i) $3,000 and

(ii) the total of all amounts each of which is the amount included under subparagraph (1)(n)(i) in computing the taxpayer’s income for the year in respect of a scholarship, fellowship or bursary received in connection with the taxpayer’s enrolment in an educational program in respect of which an amount may be deducted under subsection 118.6(2) in computing the taxpayer’s tax payable under this Part for the year, and

(c) the total of all amounts each of which is the lesser of

(i) the amount included under subparagraph (1)(n)(i) in computing the taxpayer’s income for the year in respect of a scholarship, fellowship, bursary or prize that is to be used by the taxpayer in the production of a literary, dramatic, musical or artistic work, and

(ii) the total of all amounts each of which is an expense incurred by the taxpayer in the year for the purpose of fulfilling the conditions under which the amount described in subparagraph (i) was received, other than

(A) personal or living expenses of the taxpayer (except expenses in respect of travel, meals and lodging incurred by the taxpayer in the course of fulfilling those conditions and while absent from the taxpayer’s usual place of residence for the period to which the scholarship, fellowship, bursary or prize, as the case may be, relates),

(B) expenses for which the taxpayer is entitled to be reimbursed, and

(C) expenses that are otherwise deductible in computing the taxpayer’s income.

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

40. (1) Subsection 59(1) of the Act is replaced by the following:

Marginal note:Consideration for foreign resource property

59. (1) Where a taxpayer has disposed of a foreign resource property, there shall be included in computing the taxpayer’s income for a taxation year the amount, if any, by which

(a) the portion of the taxpayer’s proceeds of disposition from the disposition of the property that becomes receivable in the year

exceeds

(b) the total of

(i) all amounts each of which is an outlay or expense made or incurred by the taxpayer for the purpose of making the disposition that was not otherwise deductible for the purposes of this Part, and

(ii) where the property is a foreign resource property in respect of a country, the amount designated under this subparagraph in prescribed form filed with the taxpayer’s return of income for the year in respect of the disposition.

Marginal note:Partnerships

(1.1) Where a taxpayer is a member of a partnership in a fiscal period of the partnership, the taxpayer’s share of the amount that would be included under subsection (1) in respect of a disposition of a foreign resource property in computing the partnership’s income for a taxation year if the partnership were a person, the fiscal period were a taxation year, subsection (1) were read without reference to subparagraph (1)(b)(ii) and section 96 were read without reference to paragraph 96(1)(d) is deemed to be proceeds of disposition that become receivable by the taxpayer at the end of the fiscal period in respect of a disposition of the property by the taxpayer.

(2) Subsection 59(3.2) of the Act is amended by adding the following after paragraph (c):

(c.1) any amount referred to in subsection 66.21(3);

(3) Subsection 59(5) of the Act is replaced by the following:

Definition of “proceeds of disposition”

(5) In this section, “proceeds of disposition” has the meaning assigned by section 54.

(4) Subsection 59(1) of the Act, as enacted by subsection (1), and subsection (2) apply to taxation years that begin after 2000.

(5) Subsection 59(1.1) of the Act, as enacted by subsection (1), applies to fiscal periods that begin after 2000.

(6) Subsection (3) applies to transactions and events that occur after December 23, 1998.

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

Marginal note:CPP/QPP contributions on self-employed earnings

(e) 1/2 of the lesser of

(i) the total of all amounts each of which is an amount payable by the taxpayer in respect of self-employed earnings for the year as a contribution under the Canada Pension Plan or under a provincial pension plan within the meaning assigned by section 3 of that Act, and

(ii) the maximum amount of such contributions payable by the taxpayer for the year under the plan;

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

42. (1) Paragraph 63(1)(a) of the Act is replaced by the following:

(a) by the taxpayer, where the taxpayer is described in subsection (2) and the supporting person of the child for the year is a person described in clause (i)(D) of the description of C in the formula in that subsection, or

(2) Subparagraph 63(1)(e)(ii) of the Act is replaced by the following:

(ii) the total of all amounts each of which is the annual child care expense amount in respect of an eligible child of the taxpayer for the year

(3) The formula in paragraph 63(2)(b) of the Act is replaced by the following:

A × C

(4) The descriptions of A and B in paragraph 63(2)(b) of the Act are replaced by the following:


is the total of all amounts each of which is the periodic child care expense amount in respect of an eligible child of the taxpayer for the year, and

(5) The formula in paragraph 63(2.3)(c) of the Act is replaced by the following:

A × C

(6) The descriptions of A and B in paragraph 63(2.3)(c) of the Act are replaced by the following:


is the total of all amounts each of which is the periodic child care expense amount in respect of an eligible child of the taxpayer for the year, and

(7) Paragraph (c) of the definition “child care expense” in subsection 63(3) of the Act is replaced by the following:

(c) any such expenses paid in the year for a child’s attendance at a boarding school or camp to the extent that the total of those expenses exceeds the product obtained when the periodic child care expense amount in respect of the child for the year is multiplied by the number of weeks in the year during which the child attended the school or camp, and

(8) Paragraph (b) of the definition “earned income” in subsection 63(3) of the Act is replaced by the following:

(b) all amounts that are included, or that would, but for paragraph 81(1)(a) or subsection 81(4), be included, because of section 6 or 7 or paragraph 56(1)(n), (o) or (r), in computing the taxpayer’s income,

(9) Subsection 63(3) of the Act is amended by adding the following in alphabetical order:

“annual child care expense amount”

« montant annuel de frais de garde d’enfants »

“annual child care expense amount”, in respect of an eligible child of a taxpayer for a taxation year, means

(a) $10,000, where the child is a person in respect of whom an amount may be deducted under section 118.3 in computing a taxpayer’s tax payable under this Part for the year, and

(b) where the child is not a person referred to in paragraph (a),

(i) $7,000, where the child is under 7 years of age at the end of the year, and

(ii) $4,000, in any other case;

“periodic child care expense amount”

« montant périodique de frais de garde d’enfants »

“periodic child care expense amount”, in respect of an eligible child of a taxpayer for a taxation year, means 1/40 of the annual child care expense amount in respect of the child for the year;

(10) Subsections (1) and (8) apply to the 1998 and subsequent taxation years.

(11) Subsections (2) to (7) and (9) apply to the 2000 and subsequent taxation years.

43. (1) Subparagraph (i) of the description of A in paragraph 64(a) of the Act is amended by striking out the word “or” at the end of clause (B) and by adding the following after clause (B):

(C) attend a designated educational institution or a secondary school at which the taxpayer is enrolled in an educational program, or

(2) Paragraph 64(b) of the Act is replaced by the following:

(b) 2/3 of the total of

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

(A) an amount included under section 5, 6 or 7 or paragraph 56(1)(n), (o) or (r) in computing the taxpayer’s income for the year, or

(B) the taxpayer’s income for the year from a business carried on either alone or as a partner actively engaged in the business, and

(ii) where the taxpayer is in attendance at a designated educational institution or a secondary school at which the taxpayer is enrolled in an educational program, the least of

(A) $15,000,

(B) $375 times the number of weeks in the year during which the taxpayer is in attendance at the institution or school, and

(C) the amount, if any, by which the amount that would, if this Act were read without reference to this section, be the taxpayer’s income for the year exceeds the total determined under subparagraph (i) in respect of the taxpayer for the year.

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

44. (1) Subparagraph 66(4)(a)(i) of the Act is replaced by the following:

(i) the total of the foreign exploration and development expenses incurred by the taxpayer

(A) before the end of the year,

(B) at a time at which the taxpayer was resident in Canada, and

(C) where the taxpayer became resident in Canada before the end of the year, after the last time (before the end of the year) that the taxpayer became resident in Canada,

(2) The portion of paragraph 66(4)(b) of the Act before subparagraph (ii) is replaced by the following:

(b) of that total, the greater of

(i) the amount, if any, claimed by the taxpayer not exceeding 10% of the amount determined under paragraph (a) in respect of the taxpayer for the year, and

(3) Subparagraph 66(4)(b)(ii) of the Act is replaced by the following:

(ii) the total of

(A) the part of the taxpayer’s income for the year, determined without reference to this subsection and subsection 66.21(4), that can reasonably be regarded as attributable to

(I) the production of petroleum or natural gas from natural accumulations outside Canada or from oil or gas wells outside Canada, or

(II) the production of minerals from mines outside Canada,

(B) the taxpayer’s income for the year from royalties in respect of a natural accumulation of petroleum or natural gas outside Canada, an oil or gas well outside Canada or a mine outside Canada, determined without reference to this subsection and subsection 66.21(4), and

(C) all amounts each of which is an amount, in respect of a foreign resource property that has been disposed of by the taxpayer, equal to the amount, if any, by which

(I) the amount included in computing the taxpayer’s income for the year by reason of subsection 59(1) in respect of the disposition

exceeds

(II) the total of all amounts each of which is that portion of an amount deducted under subsection 66.7(2) in computing the taxpayer’s income for the year that

1. can reasonably be considered to be in respect of the foreign resource property, and

2. cannot reasonably be considered to have reduced the amount otherwise determined under clause (A) or (B) in respect of the taxpayer for the year.

(4) Section 66 of the Act is amended by adding the following after subsection (4):

Marginal note:Country-by-country FEDE allocations

(4.1) For greater certainty, the portion of an amount deducted under subsection (4) in computing a taxpayer’s income for a taxation year that can reasonably be considered to be in respect of specified foreign exploration and development expenses of the taxpayer in respect of a country is considered to apply to a source in that country.

Marginal note:Method of allocation

(4.2) For the purpose of subsection (4.1), where a taxpayer has incurred specified foreign exploration and development expenses in respect of two or more countries, an allocation to each of those countries for a taxation year shall be determined in a manner that is

(a) reasonable having regard to all the circumstances, including the level and timing of

(i) the taxpayer’s specified foreign exploration and development expenses in respect of the country, and

(ii) the profits or gains to which those expenses relate; and

(b) not inconsistent with the allocation made under subsection (4.1) for the preceding taxation year.

Marginal note:FEDE deductions where change of individual’s residence

(4.3) Where at any time in a taxation year an individual becomes or ceases to be resident in Canada,

(a) subsection (4) applies to the individual as if the year were the period or periods in the year throughout which the individual was resident in Canada; and

(b) for the purpose of applying subsection (4), subsection (13.1) does not apply to the individual for the year.

(5) Subsection 66(5) of the Act is replaced by the following:

Marginal note:Dealers

(5) Subsections (3) and (4) and sections 59, 64, 66.1, 66.2, 66.21, 66.4 and 66.7 do not apply in computing the income for a taxation year of a taxpayer (other than a principal-business corporation) whose business includes trading or dealing in rights, licences or privileges to explore for, drill for or take minerals, petroleum, natural gas or other related hydrocarbons.

(6) The portion of subsection 66(11.4) of the Act after paragraph (c) is replaced by the following:

for the purposes of subsection (4) and sections 66.2, 66.21 and 66.4, except as those provisions apply for the purposes of section 66.7, the property is deemed not to have been acquired by the corporation or partnership before that time and is deemed to have been acquired by it at that time, except that, where the property has been disposed of by it before that time and not reacquired by it before that time, the property is deemed to have been acquired by the corporation or partnership immediately before it disposed of the property.

(7) The portion of subsection 66(12.4) of the Act before paragraph (a) is replaced by the following:

Marginal note:Limitation of FEDE

(12.4) Where, as a result of a transaction that occurs after May 6, 1974, an amount becomes receivable by a taxpayer at a particular time in a taxation year and the consideration given by the taxpayer for the amount receivable is property (other than a foreign resource property) or services, the original cost of which to the taxpayer can reasonably be regarded as having been primarily foreign exploration and development expenses of the taxpayer (or would have been so regarded if they had been incurred by the taxpayer after 1971 and the definition “foreign exploration and development expenses” in subsection (15) were read without reference to paragraph (k) of that definition), the following rules apply:

(8) Paragraph 66(12.4)(b) of the Act is replaced by the following:

(b) where the amount receivable exceeds the total of the taxpayer’s foreign exploration and development expenses incurred before that time to the extent that those expenses were not deducted or deductible, as the case may be, in computing the taxpayer’s income for a preceding taxation year, there shall be included in the amount referred to in paragraph 59(3.2)(a) the amount, if any, by which the amount receivable exceeds the total of

(i) the taxpayer’s foreign exploration and development expenses incurred before that time to the extent that those expenses were not deducted or deductible, as the case may be, in computing the taxpayer’s income for a preceding taxation year, and

(ii) the amount, designated by the taxpayer in prescribed form filed with the taxpayer’s return of income for the year, not exceeding the portion of the amount receivable for which the consideration given by the taxpayer was property (other than a foreign resource property) or services, the original cost of which to the taxpayer can reasonably be regarded as having been primarily

(A) specified foreign exploration and development expenses in respect of a country, or

(B) foreign resource expenses in respect of a country; and

(9) Section 66 of the Act is amended by adding the following after subsection (12.4):

Marginal note:Limitations of foreign resource expenses

(12.41) Where a particular amount described in subsection (12.4) becomes receivable by a taxpayer at a particular time, there shall at that time be included in the value determined for G in the definition “cumulative foreign resource expense” in subsection 66.21(1) in respect of the taxpayer and a country the amount designated under subparagraph (12.4)(b)(ii) by the taxpayer in respect of the particular amount and the country.

Marginal note:Partnerships

(12.42) For the purposes of subsections (12.4) and (12.41), where a person or partnership is a member of a particular partnership and a particular amount described in subsection (12.4) becomes receivable by the particular partnership in a fiscal period of the particular partnership,

(a) the member’s share of the particular amount is deemed to be an amount that became receivable by the member at the end of the fiscal period; and

(b) the amount deemed by paragraph (a) to be an amount receivable by the member is deemed to be an amount

(i) that is described in subsection (12.4) in respect of the member, and

(ii) that has the same attributes for the member as it did for the particular partnership.

(10) Subsection 66(13.1) of the Act is replaced by the following:

Marginal note:Short taxation year

(13.1) Where a taxpayer has a taxation year that is less than 51 weeks, the amount determined in respect of the year under each of subparagraph (4)(b)(i), paragraph 66.2(2)(c), subparagraph (b)(i) of the definition “global foreign resource limit” in subsection 66.21(1), subparagraph 66.21(4)(a)(i), clause 66.21(4)(a)(ii)(B) and paragraphs 66.4(2)(b) and 66.7(2.3)(a), (4)(a) and (5)(a) shall not exceed that proportion of the amount otherwise determined that the number of days in the year is of 365.

(11) The definitions “original owner” and “predecessor owner” in subsection 66(15) of the Act are replaced by the following:

“original owner”

« propriétaire obligé »

“original owner” of a Canadian resource property or a foreign resource property means a person

(a) who owned the property and disposed of it to a corporation that acquired it in circumstances in which subsection 29(25) of the Income Tax Application Rules or subsection 66.7(1), (2), (2.3), (3), (4) or (5) applies, or would apply if the corporation had continued to own the property, to the corporation in respect of the property, and

(b) who would, but for subsection 66.7(12), (13), (13.1) or (17), as the case may be, be entitled in computing that person’s income for a taxation year that ends after that person disposed of the property to a deduction under section 29 of the Income Tax Application Rules or subsection (2), (3) or (4), 66.1(2) or (3), 66.2(2), 66.21(4) or 66.4(2) of this Act in respect of expenses described in subparagraph 29(25)(c)(i) or (ii) of that Act, Canadian exploration and development expenses, foreign resource pool expenses, Canadian exploration expenses, Canadian development expenses or Canadian oil and gas property expenses incurred by the person before the person disposed of the property;

“predecessor owner”

« propriétaire antérieur »

“predecessor owner” of a Canadian resource property or a foreign resource property means a corporation

(a) that acquired the property in circumstances in which subsection 29(25) of the Income Tax Application Rules or subsection 66.7(1), (2), (2.3), (3), (4) or (5) applies, or would apply if the corporation had continued to own the property, to the corporation in respect of the property,

(b) that disposed of the property to another corporation that acquired it in circumstances in which subsection 29(25) of the Income Tax Application Rules or subsection 66.7(1), (2), (2.3), (3), (4) or (5) applies, or would apply if the other corporation had continued to own the property, to the other corporation in respect of the property, and

(c) that would, but for subsection 66.7(14), (15), (15.1) or (17), as the case may be, be entitled in computing its income for a taxation year ending after it disposed of the property to a deduction under subsection 29(25) of the Income Tax Application Rules or subsection 66.7(1), (2), (2.3), (3), (4) or (5) in respect of expenses incurred by an original owner of the property;

(12) Paragraph (c) of the definition “Canadian resource property” in subsection 66(15) of the Act is replaced by the following:

(c) any oil or gas well in Canada or any real property in Canada the principal value of which depends on its petroleum or natural gas content (but not including any depreciable property),

(13) Paragraph (f) of the definition “Canadian resource property” in subsection 66(15) of the Act is replaced by the following:

(f) any real property in Canada the principal value of which depends on its mineral resource content (but not including any depreciable property), or

(14) Paragraph (b) of the definition “foreign exploration and development expenses” in subsection 66(15) of the Act is replaced by the following:

(b) any expense incurred by the taxpayer for the purpose of determining the existence, location, extent or quality of a mineral resource outside Canada, including any expense incurred in the course of

(i) prospecting,

(ii) carrying out geological, geophysical or geochemical surveys,

(iii) drilling by rotary, diamond, percussion or other method, or

(iv) trenching, digging test pits and preliminary sampling,

(15) The definition “foreign exploration and development expenses” in subsection 66(15) of the Act is amended by striking out the word “or” at the end of paragraph (h) and by adding the following after paragraph (i):

(j) an expenditure that is the cost, or any part of the cost, to the taxpayer of any depreciable property of a prescribed class that was acquired after December 21, 2000,

(k) foreign resource expenses in respect of a country, or

(l) an expenditure made after February 27, 2000 by the taxpayer unless the expenditure was made

(i) pursuant to an agreement in writing made by the taxpayer before February 28, 2000,

(ii) for the acquisition of foreign resource property by the taxpayer, or

(iii) for the purpose of

(A) enhancing the value of foreign resource property that the taxpayer owned at the time the expenditure was incurred or that the taxpayer had a reasonable expectation of owning after that time, or

(B) assisting in evaluating whether a foreign resource property is to be acquired by the taxpayer;

(16) Subsection 66(15) of the Act is amended by adding the following in alphabetical order:

“specified foreign exploration and development expense”

« frais d’exploration et d’aménagement à l’étranger déterminés »

“specified foreign exploration and development expense” of a taxpayer in respect of a country (other than Canada) means an amount that is included in the taxpayer’s foreign exploration and development expenses and that is

(a) a drilling or exploration expense, including any general geological or geophysical expense, incurred by the taxpayer on or in respect of exploring or drilling for petroleum or natural gas in that country,

(a.1) an expense incurred by the taxpayer after December 21, 2000 (otherwise than pursuant to an agreement in writing made before December 22, 2000) for the purpose of determining the existence, location, extent or quality of a mineral resource in that country, including any expense incurred in the course of

(i) prospecting,

(ii) carrying out geological, geophysical or geochemical surveys,

(iii) drilling by rotary, diamond, percussion or other methods, or

(iv) trenching, digging test pits and preliminary sampling,

(b) a prospecting, exploration or development expense incurred by the taxpayer before December 22, 2000 (or after December 21, 2000 pursuant to an agreement in writing made before December 22, 2000) in searching for minerals in that country,

(c) the cost to the taxpayer of the taxpayer’s foreign resource property in respect of that country,

(d) an annual payment made by the taxpayer in a taxation year of the taxpayer for the preservation of a foreign resource property in respect of that country,

(e) an amount deemed by subsection 21(2) or (4) to be a foreign exploration and development expense incurred by the taxpayer, to the extent that it can reasonably be considered to relate to an amount that, without reference to this paragraph and paragraph (f), would be a specified foreign exploration and development expense in respect of that country, or

(f) subject to section 66.8, the taxpayer’s share of the specified foreign exploration and development expenses of a partnership incurred in respect of that country in a fiscal period of the partnership if, at the end of that period, the taxpayer was a member of the partnership.

(17) Subsection 66(15.1) of the Act is replaced by the following:

Marginal note:Other definitions

(15.1) The definitions in subsections 66.1(6), 66.2(5), 66.21(1), 66.4(5) and 66.5(2) apply in this section.

(18) Subsection 66(18) of the Act is replaced by the following:

Marginal note:Members of partnerships

(18) For the purposes of this section, subsection 21(2), sections 59.1 and 66.1 to 66.7, paragraph (d) of the definition “investment expense” in subsection 110.6(1) and the descriptions of C and D in subsection 211.91(1), where a person’s share of an outlay or expense made or incurred by a partnership in a fiscal period of the partnership is included in respect of the person under paragraph (d) of the definition “foreign exploration and development expenses” in subsection (15), paragraph (h) of the definition “Canadian exploration expense” in subsection 66.1(6), paragraph (f) of the definition “Canadian development expense” in subsection 66.2(5), paragraph (e) of the definition “foreign resource expense” in subsection 66.21(1) or paragraph (b) of the definition “Canadian oil and gas property expense” in subsection 66.4(5), the portion of the outlay or expense so included is deemed, except for the purposes of applying the definitions “foreign exploration and development expenses”, “Canadian exploration expense”, “Canadian development expense”, “foreign resource expense” and “Canadian oil and gas property expense” in respect of the person, to be made or incurred by the person at the end of that fiscal period.

(19) Subsection (1) applies to the 1999 and subsequent taxation years except that in its application to the 1999 taxation year, subparagraph 66(4)(a)(i) of the Act, as enacted by subsection (1), shall be read as follows:

(i) the total of the foreign exploration and development expenses incurred by the taxpayer before the end of the year and at a time which the taxpayer was resident in Canada

(20) Subsection (2) applies to the 1995 and subsequent taxation years, except that the portion of paragraph 66(4)(b) of the Act before subparagraph (ii), as enacted by subsection (2), shall be read as follows in respect of cessations of residence that occurred before February 28, 2000:

(b) of that total, the greatest of

(i) the amount, if any, claimed by the taxpayer not exceeding 10% of the amount determined under paragraph (a) in respect of the taxpayer for the year,

(i.1) if the taxpayer ceased to be resident in Canada immediately after the end of the year, the amount, if any, claimed by the taxpayer not exceeding the amount determined under paragraph (a) in respect of the taxpayer for the year, and

(21) Subsections (3) and (5) to (8), subsection 66(12.41) of the Act, as enacted by subsection (9), subsections (10) to (13) and paragraph (k) of the definition “foreign exploration and development expenses” in subsection 66(15) of the Act, as enacted by subsection (15), apply to taxation years that begin after 2000.

(22) Subsections 66(4.1) and (4.2) of the Act, as enacted by subsection (4), apply to taxation years of a taxpayer that begin after the earlier of

(a) December 31, 1999; and

(b) where, for the purposes of subsection 117(26), a date is designated in writing by the taxpayer and the designation 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 receives royal assent, the later of

(i) the date so designated, and

(ii) December 31, 1994.

(23) Subsection 66(4.3) of the Act, as enacted by subsection (4), applies to the 1998 and subsequent taxation years.

(24) Subsection 66(12.42) of the Act, as enacted by subsection (9), and subsection (18) apply to fiscal periods that begin after 2000.

(25) Subsection (14) applies to expenses incurred after December 21, 2000, other than expenses incurred pursuant to an agreement in writing made before December 22, 2000.

(26) Paragraph (j) of the definition “foreign exploration and development expenses” in subsection 66(15) of the Act, as enacted by subsection (15), and subsection (17) apply after 2000.

(27) Paragraph (l) of the definition “foreign exploration and development expenses” in subsection 66(15) of the Act, as enacted by subsection (15), applies after February 27, 2000.

(28) Subsection (16) applies after 1994.

45. (1) Subparagraph (d)(i) of the definition “Canadian exploration expense” in subsection 66.1(6) of the Act is replaced by the following:

(i) the drilling or completing of the well resulted in the discovery that a natural underground reservoir contains petroleum or natural gas, where

(A) before the time of the discovery, no person or partnership had discovered that the reservoir contained either petroleum or natural gas, and

(B) the discovery occurred at any time before six months after the end of the year,

(2) The definition “Canadian exploration expense” in subsection 66.1(6) of the Act is amended by adding the following after paragraph (k):

(k.1) an expense that is the cost, or any part of the cost, to the taxpayer of any depreciable property of a prescribed class that was acquired after 1987,

(3) The description of L in the definition “cumulative Canadian exploration expense” in subsection 66.1(6) of the Act is replaced by the following:


is that portion of the total of all amounts each of which was deducted by the taxpayer under subsection 127(5) or (6) for a taxation year that ended before that time and that can reasonably be attributed to a qualified Canadian exploration expenditure or a flow-through mining expenditure (within the meaning assigned by subsection 127(9)) made in a preceding taxation year, and

(4) Paragraph 66.1(9)(a) of the Act is replaced by the following:

(a) the drilling or completing of an oil or gas well resulted in the discovery that a natural underground reservoir contains petroleum or natural gas and, before the time of the discovery, no person or partnership had discovered that the reservoir contained either petroleum or natural gas,

(5) Subsections (1) and (4) apply to expenses incurred after March 1987.

(6) Subsection (2) applies to the 1988 and subsequent taxation years.

(7) Subsection (3) applies after October 17, 2000.

46. (1) The definition “Canadian development expense” in subsection 66.2(5) of the Act is amended by adding the following after paragraph (i):

(i.1) an expense that is the cost, or any part of the cost, to the taxpayer of any depreciable property of a prescribed class that was acquired after 1987,

(2) Subsection (1) applies to the 1988 and subsequent taxation years.

47. (1) The Act is amended by adding the following after section 66.2:

Marginal note:Definitions

66.21 (1) The definitions in this subsection apply in this section.

“adjusted cumulative foreign resource expense”

« frais cumulatifs rajustés relatifs à des ressources à l’étranger »

“adjusted cumulative foreign resource expense” of a taxpayer, in respect of a country, at the end of a taxation year means the total of

(a) the cumulative foreign resource expense of the taxpayer, in respect of that country, at the end of the year; and

(b) the amount, if any, by which

(i) the total determined under paragraph 66.7(13.2)(a) in respect of that country and the taxpayer for the year

exceeds

(ii) the amount that would, but for paragraph (3)(c), be determined under subsection (3) in respect of that country and the taxpayer for the year.

“cumulative foreign resource expense”

« frais cumulatifs relatifs à des ressources à l’étranger »

“cumulative foreign resource expense” of a taxpayer, in respect of a country other than Canada at a particular time, means the amount determined by the formula

(A + B + C + D) – (E + F + G + H + I + J)

where


is the total of all foreign resource expenses, in respect of that country, made or incurred by the taxpayer

(a) before the particular time, and

(b) at a time (in this definition referred to as a “resident time”)

(i) at which the taxpayer was resident in Canada, and

(ii) where the taxpayer became resident in Canada before the particular time, that is after the last time (before the particular time) that the taxpayer became resident in Canada;


is the total of all amounts required to be included in computing the amount referred to in paragraph 59(3.2)(c.1), in respect of that country, for taxation years that ended before the particular time and at a resident time;


is the total of all amounts referred to in the description of F or G that are established by the taxpayer to have become a bad debt before the particular time and at a resident time;


is the total of all specified amounts determined under subsection 66.7(13.2), in respect of the taxpayer and that country, for taxation years that ended before the particular time and at a resident time;


is the total of all amounts deducted, in computing the taxpayer’s income for a taxation year that ended before the particular time and at a resident time, in respect of the taxpayer’s cumulative foreign resource expense in respect of that country;


is the total of all amounts each of which is an amount in respect of a foreign resource property, in respect of that country, (in this description referred to as the “particular property”) disposed of by the taxpayer equal to the amount, if any, by which
(a) the amount designated under subparagraph 59(1)(b)(ii) by the taxpayer in respect of the portion of the proceeds of that disposition that became receivable before the particular time and at a resident time

exceeds

(b) the amount, if any, by which

(i) the total of all amounts that would be determined under paragraph 66.7(2.3)(a), immediately before the time (in this paragraph referred to as the “relevant time”) when such proceeds of disposition became receivable, in respect of the taxpayer, that country and an original owner of the particular property (or of any other property acquired by the taxpayer with the particular property in circumstances to which subsection 66.7(2.3) applied and in respect of which the proceeds of disposition became receivable by the taxpayer at the relevant time) if

(A) amounts that became receivable at or after the relevant time were not taken into account,

(B) paragraph 66.7(2.3)(a) were read without reference to “30% of”, and

(C) no reduction under subsection 80(8) at or after the relevant time were taken into account

exceeds the total of

(ii) all amounts that would be determined under paragraph 66.7(2.3)(a) at the relevant time in respect of the taxpayer, that country and an original owner of the particular property (or of that other property) if

(A) amounts that became receivable after the relevant time were not taken into account,

(B) paragraph 66.7(2.3)(a) were read without reference to “30% of”, and

(C) no reduction under subsection 80(8) at or after the relevant time were taken into account, and

(iii) the portion of the amount otherwise determined under this paragraph that was otherwise applied to reduce the amount otherwise determined under this description;


is the total of all amounts, in respect of that country, each of which is an amount included in the amount determined under this description by reason of subsection 66(12.41) that became receivable by the taxpayer before the particular time and at a resident time;


is the total of all amounts each of which is an amount received before the particular time and at a resident time on account of any amount referred to in the description of C;


is the total of all amounts each of which is an amount by which the cumulative foreign resource expense of the taxpayer, in respect of that country, is required, by reason of subsection 80(8), to be reduced at or before the particular time and at a resident time; and


is the total of all amounts each of which is an amount that is required to be deducted, before the particular time and at a resident time, under paragraph 66.7(13.1)(a) in computing the taxpayer’s cumulative foreign resource expense.

“foreign resource expense”

« frais relatifs à des ressources à l’étranger »

“foreign resource expense” of a taxpayer, in respect of a country other than Canada, means

(a) any drilling or exploration expense, including any general geological or geophysical expense, incurred by the taxpayer on or in respect of exploring or drilling for petroleum or natural gas in that country,

(b) any expense incurred by the taxpayer for the purpose of determining the existence, location, extent or quality of a mineral resource in that country, including any expense incurred in the course of

(i) prospecting,

(ii) carrying out geological, geophysical or geochemical surveys,

(iii) drilling by rotary, diamond, percussion or other methods, or

(iv) trenching, digging test pits and preliminary sampling,

(c) the cost to the taxpayer of any of the taxpayer’s foreign resource property in respect of that country,

(d) any annual payment made by the taxpayer for the preservation of a foreign resource property in respect of that country, and

(e) subject to section 66.8, the taxpayer’s share of an expense, cost or payment referred to in any of paragraphs (a) to (d) that is made or incurred by a partnership in a fiscal period of the partnership that begins after 2000 if, at the end of that period, the taxpayer was a member of the partnership

but does not include

(f) an expenditure that is the cost, or any part of the cost, to the taxpayer of any depreciable property of a prescribed class,

(g) an expenditure incurred at any time after the commencement of production from a foreign resource property of the taxpayer in order to evaluate the feasibility of a method of recovery of petroleum, natural gas or related hydrocarbons from the portion of a natural reservoir to which the foreign resource property relates,

(h) an expenditure (other than a drilling expense) incurred at any time after the commencement of production from a foreign resource property of the taxpayer in order to assist in the recovery of petroleum, natural gas or related hydrocarbons from the portion of a natural reservoir to which the foreign resource property relates,

(i) an expenditure, incurred at any time, that relates to the injection of any substance to assist in the recovery of petroleum, natural gas or related hydrocarbons from a natural reservoir,

(j) an expenditure incurred by the taxpayer, unless the expenditure was made

(i) for the acquisition of foreign resource property by the taxpayer, or

(ii) for the purpose of

(A) enhancing the value of foreign resource property that the taxpayer owned at the time the expenditure was incurred or that the taxpayer had a reasonable expectation of owning after that time, or

(B) assisting in evaluating whether a foreign resource property is to be acquired by the taxpayer, or

(k) the taxpayer’s share of any cost or expenditure referred to in any of paragraphs (f) to (j) that is incurred by a partnership.

“foreign resource income”

« revenu provenant de ressources à l’étranger »

“foreign resource income” of a taxpayer for a taxation year, in respect of a country other than Canada, means the total of

(a) that part of the taxpayer’s income for the year, determined without reference to subsections (4) and 66(4), that is reasonably attributable to

(i) the production of petroleum or natural gas from natural accumulations of petroleum or natural gas in that country or from oil or gas wells in that country, or

(ii) the production of minerals from mines in that country;

(b) the taxpayer’s income for the year from royalties in respect of a natural accumulation of petroleum or natural gas in that country, an oil or gas well in that country or a mine in that country, determined without reference to subsections (4) and 66(4); and

(c) all amounts each of which is an amount, in respect of a foreign resource property in respect of that country that has been disposed of by the taxpayer, equal to the amount, if any, by which

(i) the amount included in computing the taxpayer’s income for the year by reason of subsection 59(1) in respect of that disposition

exceeds

(ii) the total of all amounts each of which is that portion of an amount deducted under subsection 66.7(2) in computing the taxpayer’s income for the year that

(A) can reasonably be considered to be in respect of the foreign resource property, and

(B) cannot reasonably be considered to have reduced the amount otherwise determined under paragraph (a) or (b) in respect of the taxpayer for the year.

“foreign resource loss”

« perte résultant de ressources à l’étranger »

“foreign resource loss” of a taxpayer for a taxation year in respect of a country other than Canada means the taxpayer’s loss for the year in respect of the country determined in accordance with the definition “foreign resource income” with such modifications as the circumstances require.

“global foreign resource limit”

« limite globale des frais relatifs à des ressources à l’étranger »

“global foreign resource limit” of a taxpayer for a taxation year means the amount that is the lesser of

(a) the amount, if any, by which

(i) the amount determined under subparagraph 66(4)(b)(ii) in respect of the taxpayer for the year

exceeds the total of

(ii) the total of all amounts each of which is the maximum amount that the taxpayer would be permitted to deduct, in respect of a country, under subsection (4) in computing the taxpayer’s income for the year if, in its application to the year, subsection (4) were read without reference to paragraph (4)(b), and

(iii) the amount deducted for the year under subsection 66(4) in computing the taxpayer’s income for the year; and

(b) the amount, if any, by which

(i) 30% of the total of all amounts each of which is, at the end of the year, the taxpayer’s adjusted cumulative foreign resource expense in respect of a country

exceeds

(ii) the total described in subparagraph (a)(ii).

Marginal note:Application of subsection 66(15)

(2) The definitions in subsection 66(15) apply in this section.

Marginal note:Amount to be included in income

(3) For the purpose of paragraph 59(3.2)(c.1), the amount referred to in this subsection in respect of a taxpayer for a taxation year is the amount, if any, by which

(a) the total of all amounts referred to in the descriptions of E to J in the definition “cumulative foreign resource expense” in subsection (1) that are deducted in computing the taxpayer’s cumulative foreign resource expense at the end of the year in respect of a country

exceeds the total of

(b) the total of all amounts referred to in the descriptions of A to D in the definition “cumulative foreign resource expense” in subsection (1) that are included in computing the taxpayer’s cumulative foreign resource expense at the end of the year in respect of the country, and

(c) the total determined under paragraph 66.7(13.2)(a) for the year in respect of the taxpayer and the country.

Marginal note:Deduction for cumulative foreign resource expense

(4) In computing a taxpayer’s income for a taxation year throughout which the taxpayer is resident in Canada, the taxpayer may deduct the amount claimed by the taxpayer, in respect of a country other than Canada, not exceeding the total of

(a) the greater of

(i) 10% of a particular amount equal to the taxpayer’s adjusted cumulative foreign resource expense in respect of the country at the end of the year, and

(ii) the least of

(A) if the taxpayer ceased to be resident in Canada immediately after the end of the year, the particular amount,

(B) if clause (A) does not apply, 30% of the particular amount,

(C) the amount, if any, by which the taxpayer’s foreign resource income for the year in respect of the country exceeds the portion of the amount, deducted under subsection 66(4) in computing the taxpayer’s income for the year, that applies to a source in the country, and

(D) the amount, if any, by which

(I) the total of all amounts each of which is the taxpayer’s foreign resource income for the year in respect of a country

exceeds the total of

(II) all amounts each of which is the taxpayer’s foreign resource loss for the year in respect of a country, and

(III) the amount deducted under subsection 66(4) in computing the taxpayer’s income for the year, and

(b) the lesser of

(i) the amount, if any, by which the particular amount exceeds the amount determined for the year under paragraph (a) in respect of the taxpayer, and

(ii) that portion of the taxpayer’s global foreign resource limit for the year that is designated for the year by the taxpayer, in respect of that country and no other country, in prescribed form filed with the Minister with the taxpayer’s return of income for the year.

Marginal note:Individual changing residence

(5) Where at any time in a taxation year an individual becomes or ceases to be resident in Canada,

(a) subsection (4) applies to the individual as if the year were the period or periods in the year throughout which the individual was resident in Canada; and

(b) for the purpose of applying this section, subsection 66(13.1) does not apply to the individual for the year.

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

48. (1) The definitions “disposition” and “proceeds of disposition” in subsection 66.4(5) of the Act are replaced by the following:

“proceeds of disposition”

« produit de disposition »

“proceeds of disposition” has the meaning assigned by section 54.

(2) Subsection (1) applies to transactions and events that occur after December 23, 1998.

49. (1) Subparagraph 66.7(2)(a)(i) of the Act is replaced by the following:

(i) the foreign exploration and development expenses incurred by the original owner before the original owner disposed of the particular property to the extent that those expenses were incurred when the original owner was resident in Canada, were not otherwise deducted in computing the successor’s income for the year, were not deducted in computing the successor’s income for a preceding taxation year and were not deductible by the original owner, nor deducted by any predecessor owner of the particular property, in computing income for any taxation year

(2) Section 66.7 of the Act is amended by adding the following after subsection (2):

Marginal note:Country-by-country successor FEDE allocations

(2.1) For greater certainty, the portion of an amount deducted under subsection (2) in computing a taxpayer’s income for a taxation year that can reasonably be considered to be in respect of specified foreign exploration and development expenses of the taxpayer in respect of a country is considered to apply to a source in that country.

Marginal note:Method of allocation

(2.2) For the purpose of subsection (2.1), where a taxpayer has incurred specified foreign exploration and development expenses in respect of two or more countries, an allocation to each of those countries for a taxation year shall be determined in a manner that is

(a) reasonable having regard to all the circumstances, including the level and timing of

(i) the taxpayer’s specified foreign exploration and development expenses in respect of the country, and

(ii) the profits or gains to which those expenses relate; and

(b) not inconsistent with the allocation made under subsection (2.1) for the preceding taxation year.

Marginal note:Successor of foreign resource expenses

(2.3) Subject to subsections (6) and (8), where a corporation (in this subsection referred to as the “successor”) acquired a particular foreign resource property in respect of a country (whether by way of a purchase, amalgamation, merger, winding-up or otherwise), there may be deducted by the successor in computing its income for a taxation year an amount not exceeding the total of all amounts each of which is an amount determined in respect of an original owner of the particular property that is the lesser of

(a) 30% of the amount, if any, by which

(i) the cumulative foreign resource expense, in respect of the country, of the original owner determined immediately after the disposition of the particular property by the original owner to the extent that it has not been

(A) deducted by the original owner or any predecessor owner of the particular property in computing income for any taxation year,

(B) otherwise deducted in computing the income of the successor for the year, or

(C) deducted by the successor in computing its income for any preceding taxation year

exceeds the total of

(ii) all amounts each of which is an amount (other than any portion of the amount that can reasonably be considered to result in a reduction of the amount otherwise determined under this paragraph in respect of another original owner of a relevant resource property who is not a predecessor owner of a relevant resource property or who became a predecessor owner of a relevant resource property before the original owner became a predecessor owner of a relevant resource property) that became receivable by a predecessor owner of the particular property, or by the successor in the year or a preceding taxation year, and that

(A) was included by the predecessor owner or the successor in computing an amount determined under paragraph (a) of the description of F in the definition “cumulative foreign resource expense” in subsection 66.21(1) at the end of the year, and

(B) can reasonably be regarded as attributable to the disposition of a property (in this subparagraph referred to as a “relevant resource property”) that is

(I) the particular property, or

(II) another foreign resource property in respect of the country that was acquired from the original owner with the particular property by the successor or a predecessor owner of the particular property, and

(iii) all amounts each of which is an amount by which the amount described in this paragraph is required by reason of subsection 80(8) to be reduced at or before the end of the year, and

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

(i) the part of the successor’s income for the year that can reasonably be regarded as attributable to production from the particular property, computed as if no deduction were permitted under section 29 of the Income Tax Application Rules, this section or any of sections 65 to 66.5, except that, where the successor acquired the particular property from the original owner at any time in the year (otherwise than by way of an amalgamation or merger or solely by reason of the application of paragraph (10)(c)) and did not deal with the original owner at arm’s length at that time, the amount determined under this subparagraph is deemed to be nil, and

(ii) unless the amount determined under subparagraph (i) is nil by reason of the exception provided under that subparagraph, the lesser of

(A) the total of all amounts each of which is the amount designated by the successor for the year in respect of a Canadian resource property owned by the original owner immediately before being acquired with the particular property by the successor or a predecessor owner of the particular property, not exceeding the amount included in the successor’s income for the year, computed as if no deduction were permitted under section 29 of the Income Tax Application Rules, this section or any of sections 65 to 66.5, that can reasonably be regarded as being attributable to the production from the Canadian resource property, and

(B) the amount, if any, by which 10% of the amount described in paragraph (a) for the year, in respect of the original owner, exceeds the total of all amounts each of which would, but for this subparagraph, clause (2)(b)(iii)(B) and subparagraph (10)(h)(vi), be determined under this paragraph for the year in respect of the particular property or other foreign resource property, in respect of the country, owned by the original owner immediately before being acquired with the particular property by the successor or by a predecessor owner of the particular property

exceeds the total of

(iii) all other amounts each of which is an amount deducted for the year under this subsection or subsection (2) that can reasonably be regarded as attributable to

(A) the part of its income for the year described in subparagraph (i) in respect of the particular property, or

(B) a part of its income for the year described in clause (ii)(A) in respect of which an amount is designated by the successor under clause (ii)(A), and

(iv) all amounts added by reason of subsection 80(13) in computing the amount determined under subparagraph (i),

and income in respect of which an amount is designated under clause (b)(ii)(A) is, for the purposes of clause 29(25)(d)(i)(B) of the Income Tax Application Rules, clauses (1)(b)(i)(C), (3)(b)(i)(C), (4)(b)(i)(B) and (5)(b)(i)(B) and subparagraph (10)(g)(iii), deemed not to be attributable to production from a Canadian resource property.

(3) The portion of subsection 66.7(8) of the Act before paragraph (a) is replaced by the following:

Marginal note:Application of subsections (2) and (2.3)

(8) Subsections (2) and (2.3) apply only to a corporation that has acquired a particular foreign resource property

(4) The portion of subsection 66.7(10) of the Act after paragraph (b) and before paragraph (c) is replaced by the following:

for the purposes of the provisions of the Income Tax Application Rules and this Act (other than subsections 66(12.6), (12.601), (12.602), (12.62) and (12.71)) relating to deductions in respect of drilling and exploration expenses, prospecting, exploration and development expenses, Canadian exploration and development expenses, foreign resource pool expenses, Canadian exploration expenses, Canadian development expenses and Canadian oil and gas property expenses (in this subsection referred to as “resource expenses”) incurred by the corporation before that time, the following rules apply:

(5) Subsection 66.7(10) of the Act is amended by adding the following after paragraph (e):

(f) the original owner is deemed to have been resident in Canada before that time while the corporation was resident in Canada,

(6) Subparagraphs 66.7(10)(h)(v) and (vi) of the Act are replaced by the following:

(v) for the purposes of determining the amounts under paragraphs (2)(b) and (2.3)(b), to be income from the sources described in subparagraph (iii) or (iv), as the case may be, of the transferee for its taxation year in which that taxation year of the transferor ends, and

(vi) for the purposes of determining the amounts under paragraphs (2)(b) and (2.3)(b), not to be income from the sources described in subparagraph (iii) or (iv), as the case may be, of the transferor for that year,

(7) The portion of subparagraph 66.7(10)(j)(ii) of the Act before clause (A) is replaced by the following:

(ii) for the purposes of clause 29(25)(d)(i)(B) of the Income Tax Application Rules, clauses (1)(b)(i)(C) and (2)(b)(i)(B), subparagraph (2.3)(b)(i) and clauses (3)(b)(i)(C), (4)(b)(i)(B) and (5)(b)(i)(B) for a taxation year ending after that time, the lesser of

(8) Section 66.7 of the Act is amended by adding the following after subsection (13):

Marginal note:Reduction of foreign resource expenses

(13.1) Where in a taxation year an original owner of foreign resource properties in respect of a country disposes of all or substantially all of the original owner’s foreign resource properties in circumstances to which subsection (2.3) applies,

(a) in determining the cumulative foreign resource expense of the original owner in respect of the country at any time after the time referred to in subparagraph (2.3)(a)(i), there shall be deducted the amount of that cumulative foreign resource expense determined immediately after the disposition; and

(b) for the purpose of paragraph (2.3)(a), the cumulative foreign resource expense of the original owner in respect of the country determined immediately after the disposition that was deducted under subsection 66.21(4) in computing the original owner’s income for the year is deemed to be equal to the lesser of

(i) the amount deducted under paragraph (a) in respect of the disposition, and

(ii) the amount, if any, by which

(A) the specified amount determined under subsection (13.2) in respect of the original owner and the country for the year

exceeds

(B) the total of all amounts determined under this paragraph in respect of another disposition of foreign resource property in respect of the country made by the original owner before the disposition and in the year.

Marginal note:Specified amount — foreign resource expenses

(13.2) Where in a taxation year an original owner of foreign resource properties in respect of a country disposes of all or substantially all of the original owner’s foreign resource properties in circumstances to which subsection (2.3) applies, the specified amount in respect of the country and the original owner for the year for the purposes of clause (13.1)(b)(ii)(A) and of determining the value of D in the definition “cumulative foreign resource expense” in subsection 66.21(1) is the lesser of

(a) the total of all amounts each of which is the amount, if any, by which

(i) an amount deducted under paragraph (13.1)(a) in respect of a disposition in the year by the original owner of foreign resource property in respect of the country

exceeds

(ii) the amount, if any, designated by the original owner in the prescribed form filed with the Minister within six months after the end of the year in respect of an amount described under subparagraph (i), and

(b) the total of

(i) the amount claimed under subsection 66.21(4) by the original owner in respect of the country for the year, and

(ii) the amount that would, but for paragraph 66.21(3)(c), be determined under subsection 66.21(3) in respect of the country and the original owner for the year.

(9) Section 66.7 of the Act is amended by adding the following after subsection (15):

Marginal note:Disposal of foreign resource properties — subsection (2.3)

(15.1) Where in a taxation year a predecessor owner of foreign resource properties disposes of foreign resource properties to a corporation in circumstances to which subsection (2.3) applies,

(a) for the purpose of applying that subsection to the predecessor owner in respect of its acquisition of any foreign resource properties owned by it immediately before the disposition, it is deemed, after the disposition, never to have acquired any such properties except for the purposes of

(i) where the predecessor owner and the corporation dealt with each other at arm’s length at the time of the disposition or the disposition was by way of an amalgamation or merger, determining an amount deductible under subsection (2.3) for the year, and

(ii) determining the value of F in the definition “cumulative foreign resource expense” in subsection 66.21(1); and

(b) where the corporation or another corporation acquires any of the properties on or after the disposition in circumstances to which subsection (2.3) applies, amounts that become receivable by the predecessor owner after the disposition in respect of foreign resource properties retained by it at the time of the disposition are, for the purposes of applying subsection (2.3) to the corporation or the other corporation in respect of the acquisition, deemed not to have become receivable by the predecessor owner.

(10) Subsection 66.7(18) of the Act is replaced by the following:

Marginal note:Application of interpretation provisions

(18) The definitions in subsection 66(15) and sections 66.1 to 66.4 apply in this section.

(11) Subsections (1) and (5) apply to the 1999 and subsequent taxation years.

(12) Subsections 66.7(2.1) and (2.2) of the Act, as enacted by subsection (2), apply to taxation years of a taxpayer that begin after the earlier of

(a) December 31, 1999; and

(b) where, for the purposes of subsection 117(26), a date is designated in writing by the taxpayer and the designation 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 receives royal assent, the later of

(i) the date so designated, and

(ii) December 31, 1994.

(13) Subsection 66.7(2.3) of the Act, as enacted by subsection (2), and subsections (3), (4) and (6) to (10) apply to taxation years that begin after 2000.

50. (1) Subparagraph 66.8(1)(a)(i) of the Act is amended by striking out the word “or” at the end of clause (C) and by replacing clause (D) with the following:

(D) the foreign resource expenses in respect of a country (in this subsection referred to as “country-specific foreign expenses”), or

(E) the foreign exploration and development expenses (in this subsection referred to as “global foreign expenses”),

(2) Paragraph 66.8(1)(b) of the Act is amended by striking out the word “and” at the end of subparagraph (iii) and by replacing subparagraph (iv) with the following:

(iv) if any remains unapplied, then to reduce (in the order specified by the taxpayer in writing filed with the Minister on or before the taxpayer’s filing-due date for the taxpayer’s taxation year in which the fiscal period ends or, where no such specification is made, in the order determined by the Minister) the taxpayer’s share of country-specific foreign expenses, and

(v) if any remains unapplied, then to reduce the taxpayer’s share of global foreign expenses; and

(3) Subsections (1) and (2) apply to fiscal periods that begin after 2000.

51. (1) Paragraph 69(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) to a trust because of a disposition of a property that does not result in a change in the beneficial ownership of the property; and

(2) Paragraph 69(1)(c) of the Act is replaced by the following:

(c) where a taxpayer acquires a property by way of gift, bequest or inheritance or because of a disposition that does not result in a change in the beneficial ownership of the property, the taxpayer is deemed to acquire the property at its fair market value.

(3) Paragraph 69(5)(c) of the Act is replaced by the following:

(c) subsections 52(1) and (2) do not apply for the purposes of determining the cost to the shareholder of the property; and

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

(5) Subsection (2) applies to acquisitions that occur after December 23, 1998.

(6) Subsection (3) applies to dispositions that occur after 1999.

52. (1) The portion of paragraph 70(5.1)(d) of the Act before the formula is replaced by the following:

(d) for the purpose of determining, after that time, the amount required by paragraph 14(1)(b) to be included in computing the income of the beneficiary in respect of any subsequent disposition of the property of the business, there shall be added to the amount determined for Q in the definition “cumulative eligible capital” in subsection 14(5) the amount determined by the formula

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

(a) the taxpayer is deemed to have, immediately before the taxpayer’s death, disposed of each Canadian resource property and foreign resource property of the taxpayer and received proceeds of disposition for that property equal to its fair market value immediately before the death;

(a.1) subject to subparagraph (b)(ii), any particular person who as a consequence of the taxpayer’s death acquires any property that is deemed by paragraph (a) to have been disposed of by the taxpayer is deemed to have acquired the property at the time of the death at a cost equal to the fair market value of the property immediately before the death;

(3) Subparagraph 70(5.2)(b)(ii) of the Act is replaced by the following:

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

(4) Paragraph 70(5.2)(c) of the Act is replaced by the following:

(c) the taxpayer is deemed to have, immediately before the taxpayer’s death, disposed of each property that was land included in the inventory of a business of the taxpayer and received proceeds of disposition for that property equal to its fair market value immediately before the death;

(c.1) subject to subparagraph (d)(ii), any particular person who as a consequence of the taxpayer’s death acquires any property that is deemed by paragraph (c) to have been disposed of by the taxpayer is deemed to have acquired the property at the time of the death at a cost equal to the fair market value of the property immediately before the death; and

(5) Subsection 70(5.3) of the Act is replaced by the following:

Marginal note:Fair market value

(5.3) For the purposes of subsections (5) and 104(4) and section 128.1, the fair market value at any time of any property deemed to have been disposed of at that time as a consequence of a particular individual’s death or as a consequence of the particular individual becoming or ceasing to be resident in Canada shall be determined as though the fair market value at that time of any life insurance policy, under which the particular individual (or any other individual not dealing at arm’s length with the particular individual at that time or at the time the policy was issued) was a person whose life was insured, were the cash surrender value (as defined in subsection 148(9)) of the policy immediately before the particular individual died or became or ceased to be resident in Canada, as the case may be.

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

Marginal note:Transfer of farm property from trust to settlor’s children

(9.1) Where any property in Canada of a taxpayer that is land or depreciable property of a prescribed class has been transferred or distributed to a trust described in subsection (6) or 73(1) (as that subsection applied to transfers before 2000) or a trust to which subparagraph 73(1.01)(c)(i) applies and the property or a replacement property for that property in respect of which the trust has made an election under subsection 13(4) or 44(1) was, immediately before the death of the taxpayer’s spouse or common-law partner who was a beneficiary under the trust, used in the business of farming and has, on the death of the spouse or common-law partner and as a consequence of the death, been transferred or distributed to and vested indefeasibly in an individual who was a child of the taxpayer and who was resident in Canada immediately before the death of the spouse or common-law partner, the following rules apply:

(7) The portion of subsection 70(9.3) of the Act before paragraph (a) is replaced by the following:

Marginal note:Transfer of family farm corporation or partnership from trust to children of settlor

(9.3) Where property of a taxpayer has been transferred or distributed to a trust described in subsection (6) or 73(1) (as that subsection applied to transfers before 2000) or a trust to which subparagraph 73(1.01)(c)(i) applies and the property was,

(8) Subsection (1) applies in respect of taxation years that end after February 27, 2000.

(9) Paragraphs 70(5.2)(a) and (c) of the Act, as enacted by subsections (2) and (4), respectively, and subsection (3) apply to taxation years that begin after 2000.

(10) Paragraphs 70(5.2)(a.1) and (c.1) of the Act, as enacted by subsections (2) and (4), respectively, apply to acquisitions that occur after 1992.

(11) Subsection (5) applies to dispositions that occur after October 1, 1996.

(12) Subsections (6) and (7) apply to transfers and distributions from trusts that occur after 1999.

(13) Where a particular transfer or distribution to a trust referred to in subsection 70(9.1) or (9.3) of the Act, as enacted by subsections (6) and (7), respectively, occurred before 2001, in applying that subsection 70(9.1) or (9.3) to a transfer or distribution from the trust that occurs after 1997, that subsection shall be read without reference to the words “or common-law partner” and to the Modernization of Benefits and Obligations Act, unless

(a) the particular transfer or distribution occurred after 1997;

(b) the death referred to in that subsection occurs after 1997; and

(c) either

(i) at the time of the particular transfer or distribution referred to in paragraph (a), the taxpayer was a spouse of the individual whose death is referred to in paragraph (b), or

(ii) because of an election under section 144 of the Modernization of Benefits and Obligations Act, sections 130 to 142 of that Act applied, at the time of the particular transfer or distribution referred to in paragraph (a), to the taxpayer and the individual whose death is referred to in paragraph (b).

53. (1) Subsections 73(1) and (1.1) of the Act are replaced by the following:

Marginal note:Inter vivos transfers by individuals

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

(a) to have been disposed of at that time by the individual for proceeds equal to,

(i) where the particular property is depreciable property of a prescribed class, that proportion of the undepreciated capital cost to the individual immediately before that time of all property of that class that the fair market value immediately before that time of the particular property is of the fair market value immediately before that time of all of that property of that class, and

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

(b) to have been acquired at that time by the transferee for an amount equal to those proceeds.

Marginal note:Qualifying transfers

(1.01) Subject to subsection (1.02), property is transferred by an individual in circumstances to which this subsection applies where it is transferred to

(a) the individual’s spouse or common-law partner;

(b) a former spouse or common-law partner of the individual in settlement of rights arising out of their marriage or common-law partnership; or

(c) a trust created by the individual under which

(i) the individual’s spouse or common-law partner is entitled to receive all of the income of the trust that arises before the spouse’s or common-law partner’s death and no person except the spouse or common-law partner may, before the spouse’s or common-law partner’s death, receive or otherwise obtain the use of any of the income or capital of the trust,

(ii) the individual is entitled to receive all of the income of the trust that arises before the individual’s death and no person except the individual may, before the individual’s death, receive or otherwise obtain the use of any of the income or capital of the trust, or

(iii) either

(A) the individual or the individual’s spouse is, in combination with the other, entitled to receive all of the income of the trust that arises before the later of the death of the individual and the death of the spouse and no other person may, before the later of those deaths, receive or otherwise obtain the use of any of the income or capital of the trust, or

(B) the individual or the individual’s common-law partner is, in combination with the other, entitled to receive all of the income of the trust that arises before the later of the death of the individual and the death of the common-law partner and no other person may, before the later of those deaths, receive or otherwise obtain the use of any of the income or capital of the trust.

Marginal note:Exception for transfers

(1.02) Subsection (1.01) applies to a transfer of property by an individual to a trust the terms of which satisfy the conditions in subparagraph (1.01)(c)(ii) or (iii) only where

(a) the trust was created after 1999;

(b) either

(i) the individual had attained 65 years of age at the time the trust was created, or

(ii) the transfer does not result in a change in beneficial ownership of the property and there is immediately after the transfer no absolute or contingent right of a person (other than the individual) or partnership as a beneficiary (determined with reference to subsection 104(1.1)) under the trust; and

(c) in the case of a trust the terms of which satisfy the conditions in subparagraph (1.01)(c)(ii), the trust does not make an election under subparagraph 104(4)(a)(ii.1).

Marginal note:Interpretation

(1.1) For greater certainty, a property is, for the purposes of subsections (1) and (1.01), deemed to be property of the individual referred to in subsection (1) that has been transferred to a particular transferee where,

(a) under the laws of a province or because of a decree, order or judgment of a competent tribunal made in accordance with those laws, the property

(i) is acquired or is deemed to have been acquired by the particular transferee,

(ii) is deemed or declared to be property of, or is awarded to, the particular transferee, or

(iii) has vested in the particular transferee; and

(b) the property was or would, but for those laws, have been a capital property of the individual referred to in subsection (1).

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

(a) in respect of transfers that occur in 2000 or 2001, 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 before 2002;

(b) in respect of transfers that occur in 2000 and subject to paragraph (c),

(i) subsection 73(1.01) of the Act, as enacted by subsection (1), shall be read without reference to the words “or common-law partner”, “or common-law partner’s” and “or common-law partnership”, and

(ii) subparagraph 73(1.01)(c)(iii) of the Act, as enacted by subsection (1), shall be read as follows:

(iii) the individual or the individual’s spouse is, in combination with the other, entitled to receive all of the income of the trust that arises before the later of the death of the individual and the death of the spouse and no other person may, before the later of those deaths, receive or otherwise obtain the use of any of the income or capital of the trust.

(c) paragraph (b) does not apply to a transfer at any time by an individual to or for the benefit of another individual where, because of an election under section 144 of the Modernization of Benefits and Obligations Act, sections 130 to 142 of that Act applied at that time to those individuals; and

(d) in respect of transfers that occur before March 16, 2001, subparagraph 73(1.02)(b)(ii) of the Act, as enacted by subsection (1), shall be read as follows:

(ii) no person (other than the individual) or partnership has any absolute or contingent right as a beneficiary under the trust (determined with reference to subsection 104(1.1)); and

54. (1) Section 74.2 of the Act is amended by adding the following after subsection (2):

Marginal note:Election for subsection (1) to apply

(3) Subsection (1) does not apply to a disposition at any particular time (in this subsection referred to as the “emigration disposition”) under paragraph 128.1(4)(b), by a taxpayer who is a recipient referred to in subsection (1), unless the recipient and the individual referred to in that subsection, in their returns of income for the taxation year that includes the first time, after the particular time, at which the recipient disposes of the property, jointly elect that subsection (1) apply to the emigration disposition.

Marginal note:Application of subsection (3)

(4) For the purpose of applying subsection (3) and notwithstanding subsections 152(4) to (5), any assessment of tax payable under this Act by the recipient or the individual referred to in subsection (1) shall be made that is necessary to take an election under subsection (3) into account except that no such assessment shall affect the computation of

(a) interest payable under this Act to or by a taxpayer in respect of any period that is before the taxpayer’s filing-due date for the taxation year that includes the first time, after the particular time referred to in subsection (3), at which the recipient disposes of the property referred to in that subsection; or

(b) any penalty payable under this Act.

(2) Subsection (1) applies after October 1, 1996.

55. (1) The portion of subsection 75(2) of the Act after paragraph (a) is replaced by the following:

(b) that, during the existence of the person, the property shall not be disposed of except with the person’s consent or in accordance with the person’s direction,

any income or loss from the property or from property substituted for the property, and any taxable capital gain or allowable capital loss from the disposition of the property or of property substituted for the property, shall, during the existence of the person while the person is resident in Canada, be deemed to be income or a loss, as the case may be, or a taxable capital gain or allowable capital loss, as the case may be, of the person.

(2) Paragraphs 75(3)(a) and (b) of the Act are replaced by the following:

(a) by a trust governed by a deferred profit sharing plan, an employee benefit plan, an employees profit sharing plan, a registered education savings plan, a registered pension plan, a registered retirement income fund, a registered retirement savings plan, a registered supplementary unemployment benefit plan or a retirement compensation arrangement;

(b) by an employee trust, a related segregated fund trust (within the meaning assigned by paragraph 138.1(1)(a)), a trust described in paragraph (a.1) of the definition “trust” in subsection 108(1), or a trust described in paragraph 149(1)(y);

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

(4) Paragraph 75(3)(a) of the Act, as enacted by subsection (2), applies to taxation years that end after October 8, 1986 and, notwithstanding subsections 152(4) to (5) of the Act, the Minister of National Revenue shall make any assessments, reassessments and additional assessments of tax, interest and penalties that are necessary to give effect to the words “retirement compensation arrangement” in that paragraph.

(5) Paragraph 75(3)(b) of the Act, as enacted by subsection (2), applies to the 1999 and subsequent taxation years.

56. (1) The Act is amended by adding the following after section 76:

Marginal note:Non-resident moving debt from Canadian business

76.1 (1) If at any time a debt obligation of a non-resident taxpayer that is denominated in a foreign currency ceases to be an obligation of the taxpayer in respect of a business or part of a business carried on by the taxpayer in Canada immediately before that time (other than an obligation in respect of which the taxpayer ceased to be indebted at that time), for the purpose of determining the amount of any income, loss, capital gain or capital loss due to the fluctuation in the value of the foreign currency relative to Canadian currency, the taxpayer is deemed to have settled the debt obligation immediately before that time at the amount outstanding on account of its principal amount.

Marginal note:Non-resident assuming debt

(2) If at any time a debt obligation of a non-resident taxpayer that is denominated in a foreign currency becomes an obligation of the taxpayer in respect of a business or part of a business that the taxpayer carries on in Canada after that time (other than an obligation in respect of which the taxpayer became indebted at that time), the amount of any income, loss, capital gain or capital loss in respect of the obligation due to the fluctuation in the value of the foreign currency relative to Canadian currency shall be determined based on the amount of the obligation in Canadian currency at that time.

(2) Subsection (1) applies after June 27, 1999 in respect of an authorized foreign bank, and after August 8, 2000 in any other case.

57. (1) Subsection 79.1(2) of the Act is replaced by the following:

Marginal note:Seizure of property

(2) Subject to subsection (2.1) and for the purpose of this section, a property is seized at any time by a person in respect of a debt where

(a) the beneficial ownership of the property is acquired or reacquired at that time by the person; and

(b) the acquisition or reacquisition of the property is in consequence of another person’s failure to pay to the person all or part of the specified amount of the debt.

Marginal note:Exception

(2.1) For the purpose of this section, foreign resource property is deemed not to be seized at any time from

(a) an individual or a corporation, if the individual or corporation is non-resident at that time; or

(b) a partnership (other than a partnership each member of which is resident in Canada at that time).

(2) Subsection (1) applies in respect of property acquired or reacquired after February 27, 2000.

58. (1) The portion of the definition “successor pool” in subsection 80(1) of the Act before paragraph (f) is replaced by the following:

“successor pool”

« compte de société remplaçante »

“successor pool” at any time for a commercial obligation and in respect of an amount determined in relation to a debtor means the portion of that amount that would be deductible under subsection 66.7(2), (2.3), (3), (4) or (5), as the case may be, in computing the debtor’s income for the taxation year that includes that time, if

(a) the debtor had sufficient incomes from all sources,

(b) subsection (8) did not apply to reduce the amount so determined at that time,

(c) the year ended immediately after that time, and

(d) paragraphs 66.7(2.3)(a), (4)(a) and (5)(a) were read without reference to the expressions “30% of”, “30% of” and “10% of”, respectively,

except that the successor pool at that time for the obligation is deemed to be nil unless

(e) the obligation was issued by the debtor before, and not in contemplation of, the event described in paragraph (8)(a) that gives rise to the deductibility under subsection 66.7(2), (2.3), (3), (4) or (5), as the case may be, of all or part of that amount in computing the debtor’s income, or

(2) Paragraph 80(2)(d) of the Act is replaced by the following:

(d) the applicable fraction of the unapplied portion of a forgiven amount at any time in respect of an obligation issued by the debtor is in respect of a loss for any other taxation year, the fraction required to be used under section 38 for that year;

(3) Paragraph 80(8)(a) of the Act is replaced by the following:

(a) where the debtor is a corporation resident in Canada throughout that year, each particular amount that would be determined in respect of the debtor under paragraph 66.7(2)(a), (2.3)(a), (3)(a), (4)(a) or (5)(a) if paragraphs 66.7(2.3)(a), (4)(a) and (5)(a) were read without reference to the expressions “30% of”, “30% of” and “10% of”, respectively, as a consequence of the acquisition of control of the debtor by a person or group of persons, the debtor ceasing to be exempt from tax under this Part on its taxable income or the acquisition of properties by the debtor by way of an amalgamation or merger, where the amount so applied does not exceed the successor pool immediately after that time for the obligation and in respect of the particular amount;

(4) Subsection 80(8) of the Act is amended by striking out the word “and” at the end of paragraph (d), by adding the word “and” at the end of paragraph (e) and by adding the following after paragraph (e):

(f) the cumulative foreign resource expense (within the meaning assigned by subsection 66.21(1)) of the debtor in respect of a country.

(5) Clause 80(12)(a)(ii)(B) of the Act is amended by replacing the reference to the expression “4/3 of” with a reference to the word “twice”.

(6) Subparagraph (a)(ii) of the description of D in subsection 80(13) of the Act is amended by replacing the reference to the expression “4/3 of” with a reference to the word “twice”.

(7) Paragraph (b) of the description of E in subsection 80(13) of the Act is amended by replacing the reference to the number “0.75” with a reference to the fraction “1/2”.

(8) Subsections (1), (3) and (4) apply to taxation years that begin after 2000.

(9) Subsections (2) and (5) to (7) apply to taxation years that end after February 27, 2000 except that, for a taxation year of a debtor that includes February 28, 2000 or October 17, 2000, or began after February 28, 2000 and ended before October 17, 2000,

(a) the reference to the word “twice” in clause 80(12)(a)(ii)(B) of the Act, as enacted by subsection (5), and in subparagraph (a)(ii) of the description of D in subsection 80(13) of the Act, as enacted by subsection (6), shall be read as a reference to the expression “the fraction that is the reciprocal of the fraction in paragraph 38(a), as enacted by subsection 22(1) of the Income Tax Amendments Act, 2000, that applies to the debtor for the year, multiplied by”; and

(b) the reference to the fraction “1/2” in paragraph (b) of the description of E in subsection 80(13) of the Act, as enacted by subsection (7), shall be read as a reference to the fraction in paragraph 38(a) of the Act, as enacted by subsection 22(1), that applies to the debtor for the year.

59. (1) Subsection 80.01(10) of the Act is amended by replacing the reference to the number “0.75” in the formula with a reference to the number “0.5”.

(2) Subsection (1) applies to taxation years that end after February 27, 2000 except that, for a taxation year of a debtor that includes February 28, 2000 or October 17, 2000, or began after February 28, 2000 and ended before October 17, 2000, the reference to the fraction “1/2” in subsection 80.01(10) of the Act, as enacted by subsection (1), shall be read as a reference to the fraction in paragraph 38(a) of the Act, as enacted by subsection 22(1), that applies to the debtor for the year.

60. (1) Subsection 81(1) of the Act is amended by adding the following after paragraph (g.3):

Marginal note:Relief for increased heating expenses

(g.4) an amount received pursuant to the Order Authorizing Ex Gratia Payments for Increased Heating Expenses;

(2) Subsection 81(3.1) of the Act is replaced by the following:

Marginal note:Travel expenses

(3.1) There shall not be included in computing an individual’s income for a taxation year an amount (not in excess of a reasonable amount) received by the individual from an employer with whom the individual was dealing at arm’s length as an allowance for, or reimbursement of, travel expenses incurred by the individual in the year in respect of the individual’s part-time employment in the year with the employer (other than expenses incurred in the performance of the duties of the individual’s part-time employment) if

(a) throughout the period in which the expenses were incurred,

(i) the individual had other employment or was carrying on a business, or

(ii) where the employer is a designated educational institution (within the meaning assigned by subsection 118.6(1)), the duties of the individual’s part-time employment were the provision in Canada of a service to the employer in the individual’s capacity as a professor or teacher; and

(b) the duties of the individual’s part-time employment were performed at a location not less than 80 kilometres from,

(i) where subparagraph (a)(i) applies, both the individual’s ordinary place of residence and the place of the other employment or business referred to in that subparagraph, and

(ii) where subparagraph (a)(ii) applies, the individual’s ordinary place of residence.

Marginal note:Payments for volunteer services

(4) Where

(a) an individual was employed or otherwise engaged in a taxation year by a government, municipality or public authority (in this subsection referred to as “the employer”) and received in the year from the employer one or more amounts for the performance, as a volunteer, of the individual’s duties as

(i) an ambulance technician,

(ii) a firefighter, or

(iii) a person who assists in the search or rescue of individuals or in other emergency situations, and

(b) if the Minister so demands, the employer has certified in writing that

(i) the individual was in the year a person described in paragraph (a), and

(ii) the individual was at no time in the year employed or otherwise engaged by the employer, otherwise than as a volunteer, in connection with the performance of any of the duties referred to in paragraph (a) or of similar duties,

there shall not be included in computing the individual’s income derived from the performance of those duties the lesser of $1,000 and the total of those amounts.

(3) Subsection (1) applies to amounts received after 2000.

(4) Subsection 81(3.1) of the Act, as enacted by subsection (2), applies to the 1995 and subsequent taxation years and, notwithstanding subsections 152(4) to (5) of the Act, any assessment of an individual’s tax payable under the Act for any taxation year that ends before 2000 shall be made that is necessary to take into account the application of that subsection 81(3.1).

(5) Subsection 81(4) of the Act, as enacted by subsection (2), applies to the 1998 and subsequent taxation years.

61. (1) Subsection 84.1(2.1) of the Act is amended by replacing the references to the expression “4/3 of” with references to the word “twice” and by replacing the reference to the fraction “3/4” with a reference to the fraction “1/2”.

(2) Subsection (1) applies to taxation years that end after February 27, 2000 except that, for a taxation year of a taxpayer that includes February 28, 2000 or October 17, 2000, or began after February 28, 2000 and ended before October 17, 2000, the references to the word “twice” in subsection 84.1(2.1) of the Act, as enacted by subsection (1), shall be read as references to the expression “the fraction that is the reciprocal of the fraction in paragraph 38(a), as enacted by subsection 22(1) of the Income Tax Amendments Act, 2000, that applies to the taxpayer for the year multiplied by” and the reference to the fraction “1/2” shall be read as a reference to the fraction in paragraph 38(a) of the Act, as enacted by subsection 22(1), that applies to the taxpayer for the year.

62. (1) The descriptions of D and E in paragraph 85(1)(d.1) of the Act are replaced by the following:


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, and


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;

(2) Section 85 of the Act is amended by adding the following after subsection (1.1):

Marginal note:Exception

(1.11) Notwithstanding subsection (1.1), a foreign resource property, or an interest in a partnership that derives all or part of its value from one or more foreign resource properties, is not an eligible property of a taxpayer in respect of a disposition by the taxpayer to a corporation where

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

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

(3) Subsection (1) applies in respect of taxation years that end after February 27, 2000.

(4) Subsection (2) applies to dispositions that occur after December 21, 2000 other than a disposition by a taxpayer that occurs pursuant to an agreement in writing made by the taxpayer on or before that date.

63. (1) Subsection 85.1(2) of the Act is amended by striking out the word “or” at the end of paragraph (c), by adding the word “or” at the end of paragraph (d) and by adding the following after paragraph (d):

(e) the vendor

(i) is a foreign affiliate of a taxpayer resident in Canada at the end of the taxation year of the vendor in which the exchange occurred, and

(ii) has included any portion of the gain or loss, otherwise determined, from the disposition of the exchanged shares in computing its foreign accrual property income for the taxation year of the vendor in which the exchange occurred.

(2) Section 85.1 of the Act is amended by adding the following after subsection (4):

Marginal note:Foreign share for foreign share exchange

(5) Subject to subsections (3) and (6) and 95(2), where a corporation resident in a country other than Canada (in this section referred to as the “foreign purchaser”) issues shares of its capital stock (in this section referred to as the “issued foreign shares”) to a vendor in exchange for shares of the capital stock of another corporation resident in a country other than Canada (in this section referred to as the “exchanged foreign shares”) that were immediately before the exchange capital property of the vendor, except where the vendor has, in the vendor’s return of income for the taxation year in which the exchange occurred, included in computing the vendor’s income for that year any portion of the gain or loss, otherwise determined, from the disposition of the exchanged foreign shares, the vendor is deemed

(a) to have disposed of the exchanged foreign shares for proceeds of disposition equal to the adjusted cost base to the vendor of those shares immediately before the exchange, and

(b) to have acquired the issued foreign shares at a cost to the vendor equal to the adjusted cost base to the vendor of the exchanged foreign shares immediately before the exchange,

and where the exchanged foreign shares were taxable Canadian property of the vendor, the issued foreign shares so acquired by the vendor are deemed to be taxable Canadian property of the vendor.

Marginal note:Where subsection (5) does not apply

(6) Subsection (5) does not apply where

(a) the vendor and foreign purchaser were, immediately before the exchange, not dealing with each other at arm’s length (otherwise than because of a right referred to in paragraph 251(5)(b) that is a right of the foreign purchaser to acquire the exchanged foreign shares);

(b) immediately after the exchange the vendor, persons with whom the vendor did not deal at arm’s length or the vendor together with persons with whom the vendor did not deal at arm’s length

(i) controlled the foreign purchaser, or

(ii) beneficially owned shares of the capital stock of the foreign purchaser having a fair market value of more than 50% of the fair market value of all of the outstanding shares of the capital stock of the foreign purchaser;

(c) consideration other than issued foreign shares was received by the vendor for the exchanged foreign shares, notwithstanding that the vendor may have disposed of shares of the capital stock of the other corporation referred to in subsection (5) (other than the exchanged foreign shares) to the foreign purchaser for consideration other than shares of the capital stock of the foreign purchaser;

(d) the vendor

(i) is a foreign affiliate of a taxpayer resident in Canada at the end of the taxation year of the vendor in which the exchange occurred, and

(ii) has included any portion of the gain or loss, otherwise determined, from the disposition of the exchanged foreign shares in computing its foreign accrual property income for the taxation year of the vendor in which the exchange occurred; or

(e) the vendor is a foreign affiliate of a taxpayer resident in Canada at the end of the taxation year of the vendor in which the exchange occurred and the exchanged foreign shares are excluded property (within the meaning assigned by subsection 95(1)) of the vendor.

(3) Subsections (1) and (2) apply to exchanges that occur after 1995.

64. (1) The Act is amended by adding the following after section 86:

Foreign Spin-offs

Marginal note:Eligible distribution not included in income

86.1 (1) Notwithstanding any other provision of this Part,

(a) the amount of an eligible distribution received by a taxpayer shall not be included in computing the income of the taxpayer; and

(b) subsection 52(2) does not apply to the eligible distribution received by the taxpayer.

Marginal note:Eligible distribution

(2) For the purposes of this section and Part XI, a distribution by a particular corporation that is received by a taxpayer is an eligible distribution if

(a) the distribution is with respect to all of the taxpayer’s common shares of the capital stock of the particular corporation (in this section referred to as the “original shares”);

(b) the distribution consists solely of common shares of the capital stock of another corporation that were owned by the particular corporation immediately before their distribution to the taxpayer (in this section referred to as the “spin-off shares”);

(c) in the case of a distribution that is not prescribed,

(i) at the time of the distribution, both corporations are resident in the United States and were never resident in Canada,

(ii) at the time of the distribution, the shares of the class that includes the original shares are widely held and actively traded on a prescribed stock exchange in the United States, and

(iii) under the United States Internal Revenue Code applicable to the distribution, the shareholders of the particular corporation who are resident in the United States are not taxable in respect of the distribution;

(d) in the case of a distribution that is prescribed,

(i) at the time of the distribution, both corporations are resident in the same country, other than the United States, with which Canada has a tax treaty (in this section referred to as the “foreign country”) and were never resident in Canada,

(ii) at the time of the distribution, the shares of the class that includes the original shares are widely held and actively traded on a prescribed stock exchange,

(iii) under the law of the foreign country, those shareholders of the particular corporation who are resident in that country are not taxable in respect of the distribution, and

(iv) the distribution is prescribed subject to such terms and conditions as are considered appropriate in the circumstances;

(e) before the end of the sixth month following the day on which the particular corporation first distributes a spin-off share in respect of the distribution, the particular corporation provides to the Minister information satisfactory to the Minister establishing

(i) that, at the time of the distribution, the shares of the class that includes the original shares are widely held and actively traded on a prescribed stock exchange,

(ii) that the particular corporation and the other corporation referred to in paragraph (b) were never resident in Canada,

(iii) the date of the distribution,

(iv) the type and fair market value of each property distributed to residents of Canada,

(v) the name and address of each resident of Canada that received property with respect to the distribution,

(vi) in the case of a distribution that is not prescribed, that the distribution is not taxable under the United States Internal Revenue Code applicable to the distribution,

(vii) in the case of a distribution that is prescribed, that the distribution is not taxable under the law of the foreign country, and

(viii) such other matters that are required, in prescribed form; and

(f) except where Part XI applies in respect of the taxpayer, the taxpayer elects in writing filed with the taxpayer’s return of income for the taxation year in which the distribution occurs (or, in the case of a distribution received before October 18, 2000, filed with the Minister before July 2001) that this section apply to the distribution and provides information satisfactory to the Minister

(i) of the number, cost amount (determined without reference to this section) and fair market value of the taxpayer’s original shares immediately before the distribution,

(ii) of the number, and fair market value, of the taxpayer’s original shares and the spin-off shares immediately after the distribution of the spin-off shares to the taxpayer,

(iii) except where the election is filed with the taxpayer’s return of income for the year in which the distribution occurs, concerning the amount of the distribution, the manner in which the distribution was reported by the taxpayer and the details of any subsequent disposition of original shares or spin-off shares for the purpose of determining any gains or losses from those dispositions, and

(iv) of such other matters that are required, in prescribed form.

Marginal note:Cost adjustments

(3) Where a spin-off share is distributed by a corporation to a taxpayer pursuant to an eligible distribution with respect to an original share of the taxpayer,

(a) there shall be deducted for the purpose of computing the cost amount to the taxpayer of the original share at any time the amount determined by the formula

A × (B / C)

where


is the cost amount, determined without reference to this section, to the taxpayer of the original share at the time that is immediately before the distribution or, if the original share is disposed of by the taxpayer, before the distribution, at the time that is immediately before its disposition,


is the fair market value of the spin-off share immediately after its distribution to the taxpayer, and


is the total of

(i) the fair market value of the original share immediately after the distribution of the spin-off share to the taxpayer, and

(ii) the fair market value of the spin-off share immediately after its distribution to the taxpayer; and

(b) the cost to the taxpayer of the spin-off share is the amount by which the cost amount of the taxpayer’s original share was reduced as a result of paragraph (a).

Marginal note:Inventory

(4) For the purpose of calculating the value of the property described in an inventory of a taxpayer’s business,

(a) an eligible distribution to the taxpayer of a spin-off share that is included in the inventory is deemed not to be an acquisition of property in the fiscal period of the business in which the distribution occurs; and

(b) for greater certainty, the value of the spin-off share is to be included in computing the value of the inventory at the end of that fiscal period.

Marginal note:Reassessments

(5) Notwithstanding subsections 152(4) to (5), the Minister may make at any time such assessments, reassessments, determinations and redeterminations that are necessary where information is obtained that the conditions in subparagraph (2)(c)(iii) or (d)(iii) are not, or are no longer, satisfied.

(2) Subsection (1) applies to distributions received after 1997, except that

(a) information referred to in paragraph 86.1(2)(e) of the Act, as enacted by subsection (1), is deemed to be provided to the Minister of National Revenue on a timely basis if it is provided to that Minister before the day that is 90 days after the day on which this Act receives royal assent; and

(b) the election referred to in paragraph 86.1(2)(f) of the Act, as enacted by subsection (1), is deemed to be filed on a timely basis if it is filed with the Minister of National Revenue before the day that is 90 days after the day on which this Act receives royal assent.

65. (1) Subsection 87(1.2) of the Act is replaced by the following:

Marginal note:New corporation continuation of a predecessor

(1.2) Where there has been an amalgamation of corporations described in paragraph (1.1)(a) or of two or more corporations each of which is a subsidiary wholly-owned corporation of the same person, the new corporation is, for the purposes of section 29 of the Income Tax Application Rules, subsection 59(3.3) and sections 66, 66.1, 66.2, 66.21, 66.4 and 66.7, deemed to be the same corporation as, and a continuation of, each predecessor corporation, except that this subsection does not affect the determination of any predecessor corporation’s fiscal period, taxable income or tax payable.

(2) Subparagraph 87(2)(u)(ii) of the Act is replaced by the following:

(ii) for the purposes of subsections 93(2) to (2.3), any exempt dividend received by the predecessor corporation on any such share is deemed to be an exempt dividend received by the new corporation on the share;

(3) The portion of subsection 87(8) of the Act before paragraph (a) is replaced by the following:

Marginal note:Foreign merger

(8) Subject to subsection 95(2), where there has been a foreign merger in which a taxpayer’s shares or options to acquire shares of the capital stock of a corporation that was a predecessor foreign corporation immediately before the merger were exchanged for or became shares or options to acquire shares of the capital stock of the new foreign corporation or the foreign parent corporation, unless the taxpayer elects in the taxpayer’s return of income for the taxation year in which the foreign merger took place not to have this subsection apply, subsections (4) and (5) apply to the taxpayer as if the references in those subsections to

(4) Subsection 87(8.1) of the Act is replaced by the following:

Definition of “foreign merger”

(8.1) For the purposes of this section, “foreign merger” means a merger or combination of two or more corporations each of which was, immediately before the merger or combination, resident in a country other than Canada (each of which is in this section referred to as a “predecessor foreign corporation”) to form one corporate entity resident in a country other than Canada (in this section referred to as the “new foreign corporation”) in such a manner that, and otherwise than as a result of the distribution of property to one corporation on the winding-up of another corporation,

(a) all or substantially all the property (except amounts receivable from any predecessor foreign corporation or shares of the capital stock of any predecessor foreign corporation) of the predecessor foreign corporations immediately before the merger or combination becomes property of the new foreign corporation as a consequence of the merger or combination;

(b) all or substantially all the liabilities (except amounts payable to any predecessor foreign corporation) of the predecessor foreign corporations immediately before the merger or combination become liabilities of the new foreign corporation as a consequence of the merger or combination; and

(c) all or substantially all of the shares of the capital stock of the predecessor foreign corporations (except any shares or options owned by any predecessor foreign corporation) are exchanged for or become, because of the merger or combination,

(i) shares of the capital stock of the new foreign corporation, or

(ii) if, immediately after the merger, the new foreign corporation was controlled by another corporation (in this section referred to as the “foreign parent corporation”) that was resident in a country other than Canada, shares of the capital stock of the foreign parent corporation.

(5) The portion of subsection 87(10) of the Act after paragraph (f) is replaced by the following:

the new share is deemed, for the purposes of subsection 116(6), the definitions “qualified investment” in subsections 146(1), 146.1(1), and 146.3(1) and in section 204, and the definition “taxable Canadian property” in subsection 248(1), to be listed on the exchange until the earliest time at which it is so redeemed, acquired or cancelled.

(6) Subsection (1) applies to amalgamations that occur after 2000.

(7) Subsection (2) applies after November 1999.

(8) Subsections (3) and (4) apply to mergers and combinations that occur after 1995 and, where a taxpayer notifies the Minister of National Revenue in writing before the taxpayer’s filing-due date for the taxation year in which this Act receives royal assent that the taxpayer makes the election referred to in subsection 87(8) of the Act, as enacted by subsection (3), in respect of a merger or combination that occurred before 1999, the election is deemed to have been validly made in respect of the merger or combination.

(9) Subsection (5) applies after October 1, 1996.

66. (1) The portion of subclause 88(1)(c)(vi)(B)(III) of the Act before sub-subclause 1 is replaced by the following:

(III) a corporation (other than a specified person or the subsidiary)

(2) Clause 88(1)(c.2)(iii)(A) of the Act is replaced by the following:

(A) the reference in the definition “specified shareholder” in subsection 248(1) to “the issued shares of any class of the capital stock of the corporation or of any other corporation that is related to the corporation” shall be read as “the issued shares of any class (other than a specified class) of the capital stock of the corporation or of any other corporation that is related to the corporation and that has a significant direct or indirect interest in any issued shares of the capital stock of the corporation”, and

(3) Subsection 88(1) of the Act is amended by adding the following after paragraph (c.7):

(c.8) for the purpose of clause (c.2)(iii)(A), a specified class of the capital stock of a corporation is a class of shares of the capital stock of the corporation where

(i) the paid-up capital in respect of the class was not, at any time, less than the fair market value of the consideration for which the shares of that class then outstanding were issued,

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

(iii) under neither the terms and conditions of the shares nor any agreement in respect of the shares are the shares convertible into or exchangeable for shares other than shares of a specified class of the capital stock of the corporation, and

(iv) under neither the terms and conditions of the shares nor any agreement in respect of the shares is any holder of the shares 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 (excluding any premium for early redemption) 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;

(4) Subsection 88(1.5) of the Act is replaced by the following:

Marginal note:Parent continuation of subsidiary

(1.5) For the purposes of section 29 of the Income Tax Application Rules, subsection 59(3.3) and sections 66, 66.1, 66.2, 66.21, 66.4 and 66.7, where the rules in subsection (1) applied to the winding-up of a subsidiary, its parent is deemed to be the same corporation as, and a continuation of, the subsidiary.

(5) The portion of subsection 88(4) of the Act before paragraph (a) is replaced by the following:

Marginal note:Amalgamation deemed not to be acquisition of control

(4) For the purposes of paragraphs (1)(c), (c.2), (d) and (d.2) and, for greater certainty, paragraphs (c.3) to (c.8) and (d.3),

(6) Subsections (1) to (3) and (5) apply to windings-up that begin after November 1994.

(7) Subsection (4) applies to windings-up that occur after 2000.

67. (1) Clause (a)(i)(A) of the definition “capital dividend account” in subsection 89(1) of the Act is replaced by the following:

(A) the amount of the corporation’s capital gain from a disposition (other than a disposition that is the making of a gift after December 8, 1997 that is not a gift described in subsection 110.1(1)) of a property in the period beginning at the beginning of its first taxation year (that began after the corporation last became a private corporation and that ended after 1971) and ending immediately before the particular time (in this definition referred to as “the period”)

(2) Paragraph (c) of the definition “capital dividend account” in subsection 89(1) of the Act is replaced by the following:

(c) the total of all amounts each of which is an amount required to have been included under this paragraph as it read in its application to a taxation year that ended before February 28, 2000,

(c.1) the amount, if any, by which

(i) 1/2 of the total of all amounts each of which is an amount required by paragraph 14(1)(b) to be included in computing the corporation’s income in respect of a business carried on by the corporation for a taxation year that is included in the period and that ended after February 27, 2000 and before October 18, 2000,

exceeds

(ii) where the corporation has deducted an amount under subsection 20(4.2) in respect of a debt established by it to have become a bad debt in a taxation year that is included in the period and that ended after February 27, 2000 and before October 18, 2000, or has an allowable capital loss for such a year because of the application of subsection 20(4.3), the amount determined by the formula

V + W

where


is 1/2 of the value determined for A under subsection 20(4.2) in respect of the corporation for the last such taxation year that ended in the period, and


is 1/3 of the value determined for B under subsection 20(4.2) in respect of the corporation for the last such taxation year that ended in the period, and

(iii) in any other case, nil,

(c.2) the amount, if any, by which

(i) the total of all amounts each of which is an amount required by paragraph 14(1)(b) to be included in computing the corporation’s income in respect of a business carried on by the corporation for a taxation year that is included in the period and that ends after October 17, 2000,

exceeds

(ii) where the corporation has deducted an amount under subsection 20(4.2) in respect of a debt established by it to have become a bad debt in a taxation year that is included in the period and that ends after October 17, 2000, or has an allowable capital loss for such a year because of the application of subsection 20(4.3), the amount determined by the formula

X + Y

where


is the value determined for A under subsection 20(4.2) in respect of the corporation for the last such taxation year that ended in the period, and


is 1/3 of the value determined for B under subsection 20(4.2) in respect of the corporation for the last such taxation year that ended in the period, and

(iii) in any other case, nil,

(3) The definition “capital dividend account” in subsection 89(1) of the Act is amended by striking out the word “and” at the end of paragraph (d) and by adding the following after paragraph (e):

(f) all amounts each of which is an amount in respect of a distribution made in the period by a trust to the corporation in respect of capital gains of the trust equal to the lesser of

(i) the amount, if any, by which

(A) the amount of the distribution

exceeds

(B) the amount designated under subsection 104(21) by the trust (other than a designation to which subsection 104(21.4) applies) in respect of the net taxable capital gains of the trust attributable to those capital gains, and

(ii) the amount determined by the formula

A × B

where


is the fraction or whole number determined when 1 is subtracted from the reciprocal of the fraction under paragraph 38(a) applicable to the trust for the year, and


is the amount referred to in clause (i) (B), and

(g) all amounts each of which is an amount in respect of a distribution made by a trust to the corporation in the period in respect of a dividend (other than a taxable dividend) paid on a share of the capital stock of another corporation resident in Canada to the trust during a taxation year of the trust throughout which the trust was resident in Canada equal to the lesser of

(i) the amount of the distribution, and

(ii) the amount designated under subsection 104(20) by the trust in respect of the corporation in respect of that dividend,

(4) Subsection (1) applies to dispositions made after December 8, 1997, other than a disposition made under a written agreement made before December 9, 1997.

(5) Subsection (2) applies in respect of taxation years that end after February 27, 2000.

(6) Subsection (3) applies to elections in respect of capital dividends that become payable after 1997.

68. (1) Section 91 of the Act is amended by adding the following after subsection (6):

Marginal note:Shares acquired from a partnership

(7) For the purpose of subsection (5), where a taxpayer resident in Canada acquires a share of the capital stock of a corporation that is immediately after the acquisition a foreign affiliate of the taxpayer from a partnership of which the taxpayer, or a corporation resident in Canada with which the taxpayer was not dealing at arm’s length at the time the share was acquired, was a member (each such person referred to in this subsection as the “member”) at any time during any fiscal period of the partnership that began before the acquisition,

(a) that portion of any amount required by subsection 92(1) to be added to the adjusted cost base to the partnership of the share of the capital stock of the foreign affiliate equal to the amount included in the income of the member because of subsection 96(1) in respect of the amount that was included in the income of the partnership because of subsection (1) or (3) in respect of the foreign affiliate and added to that adjusted cost base, and

(b) that portion of any amount required by subsection 92(1) to be deducted from the adjusted cost base to the partnership of the share of the capital stock of the foreign affiliate equal to the amount by which the income of the member from the partnership under subsection 96(1) was reduced because of the amount deducted in computing the income of the partnership under subsection (2), (4) or (5) and deducted from that adjusted cost base

is deemed to be an amount required by subsection 92(1) to be added or deducted, as the case may be, in computing the adjusted cost base to the taxpayer of the share.

(2) Subsection (1) applies to shares acquired after November 1999.

69. (1) Section 92 of the Act is amended by adding the following after subsection (3):

Marginal note:Disposition of a partnership interest

(4) Where a corporation resident in Canada or a foreign affiliate of a corporation resident in Canada has at any time disposed of all or a portion of an interest in a partnership of which it was a member, there shall be added, in computing the proceeds of disposition of that interest, the amount determined by the formula

(A – B) × (C / D)

where


is the amount, if any, by which
(a) the total of all amounts each of which is an amount that was deductible under paragraph 113(1)(d) by the member from its income in computing its taxable income for any taxation year of the member that began before that time in respect of any portion of a dividend received by the partnership, or would have been so deductible if the member were a corporation resident in Canada,

exceeds

(b) the total of all amounts each of which is the portion of any income or profits tax paid by the partnership or the member of the partnership to a government of a country other than Canada that can reasonably be considered as having been paid in respect of the member’s share of the dividend described in paragraph (a);


is the total of

(a) the total of all amounts each of which was an amount added under this subsection in computing the member’s proceeds of a disposition before that time of another interest in the partnership, and

(b) the total of all amounts each of which was an amount deemed by subsection (5) to be a gain of the member from a disposition before that time of a share by the partnership;


is the adjusted cost base, immediately before that time, of the portion of the member’s interest in the partnership disposed of by the member at that time; and


is the adjusted cost base, immediately before that time, of the member’s interest in the partnership immediately before that time.

Marginal note:Deemed gain from the disposition of a share

(5) Where a partnership has, at any time in a fiscal period of the partnership at the end of which a corporation resident in Canada or a foreign affiliate of a corporation resident in Canada was a member, disposed of a share of the capital stock of a corporation, the amount determined under subsection (6) in respect of such a member is deemed to be a gain of the member from the disposition of the share by the partnership for the member’s taxation year in which the fiscal period of the partnership ends.

Marginal note:Formula

(6) The amount determined for the purposes of subsection (5) is the amount determined by the formula

A – B

where


is the amount, if any, by which
(a) the total of all amounts each of which is an amount that was deductible under paragraph 113(1)(d) by the member from its income in computing its taxable income for a taxation year in respect of any portion of a dividend received by the partnership on the share in a fiscal period of the partnership that began before the time referred to in subsection (5) and ends in the member’s taxation year, or would have been so deductible if the member were a corporation resident in Canada,

exceeds

(b) the total of all amounts each of which is the portion of any income or profits tax paid by the partnership or the member to a government of a country other than Canada that can reasonably be considered as having been paid in respect of the member’s share of the dividend described in paragraph (a); and


is the total of all amounts each of which is an amount that was added under subsection (4) in computing the member’s proceeds of a disposition before the time referred to in subsection (5) of an interest in the partnership.

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

70. (1) Subparagraph 93(1)(b)(ii) of the Act is replaced by the following:

(ii) for the purposes of determining the exempt surplus, exempt deficit, taxable surplus, taxable deficit and underlying foreign tax of the affiliate in respect of the corporation resident in Canada (within the meanings assigned by Part LIX of the Income Tax Regulations), the affiliate is deemed to have redeemed at the time of the disposition shares of a class of its capital stock.

(2) Section 93 of the Act is amended by adding the following after subsection (1.1):

Marginal note:Disposition of shares of a foreign affiliate held by a partnership

(1.2) Where a particular corporation resident in Canada or a foreign affiliate of the particular corporation (each of which is referred to in this subsection as the “disposing corporation”) would, but for this subsection, have a taxable capital gain from a disposition by a partnership, at any time, of shares of a class of the capital stock of a foreign affiliate of the particular corporation and the particular corporation so elects in prescribed manner in respect of the disposition,

(a) 4/3 of

(i) the amount designated by the particular corporation (which amount shall not exceed the amount that is equal to the proportion of the taxable capital gain of the partnership that the number of shares of that class of the capital stock of the foreign affiliate, determined as the amount, if any, by which the number of those shares that were deemed to have been owned by the disposing corporation for the purposes of subsection 93.1(1) immediately before the disposition exceeds the number of those shares that were deemed to have been owned for those purposes by the disposing corporation immediately after the disposition, is of the number of those shares of the foreign affiliate that were owned by the partnership immediately before the disposition), or

(ii) where subsection (1.3) applies, the amount prescribed for the purpose of that subsection

in respect of those shares is deemed to have been a dividend received immediately before that time on the number of those shares of the foreign affiliate which shall be determined as the amount, if any, by which the number of those shares that the disposing corporation was deemed to own for the purpose of subsection 93.1(1) immediately before the disposition exceeds the number of those shares of the foreign affiliate that the disposing corporation was deemed to own for the purposes of subsection 93.1 (1) immediately after the disposition;

(b) notwithstanding section 96, the disposing corporation’s taxable capital gain from the disposition of those shares is deemed to be the amount, if any, by which the disposing corporation’s taxable capital gain from the disposition of the shares otherwise determined exceeds the amount designated by the particular corporation in respect of the shares;

(c) for the purpose of any regulation made under this subsection, the disposing corporation is deemed to have disposed of the number of those shares of the foreign affiliate which shall be determined as the amount, if any, by which the number of those shares that the disposing corporation was deemed to own for the purposes of subsection 93.1(1) immediately before the disposition exceeds the number of those shares that the disposing corporation was deemed to own for those purposes immediately after the disposition;

(d) for the purposes of section 113 in respect of the dividend referred to in paragraph (a), the disposing corporation is deemed to have owned the shares on which that dividend was received; and

(e) where the disposing corporation has a taxable capital gain from the partnership because of the application of subsection 40(3) to the partnership in respect of those shares, for the purposes of this subsection, the shares are deemed to have been disposed of by the partnership.

Marginal note:Deemed election

(1.3) Where a foreign affiliate of a particular corporation resident in Canada has a gain from the disposition by a partnership at any time of shares of a class of the capital stock of a foreign affiliate of the particular corporation that are excluded property, the particular corporation is deemed to have made an election under subsection (1.2) in respect of the number of shares of the foreign affiliate which shall be determined as the amount, if any, by which the number of those shares that the disposing corporation was deemed to own for the purposes of subsection 93.1(1) immediately before the disposition exceeds the number of those shares that the disposing corporation was deemed to own for those purposes immediately after the disposition.

(3) Subsection 93(2) of the Act is replaced by the following:

Marginal note:Loss limitation on disposition of share

(2) Where

(a) a corporation resident in Canada has a loss from the disposition by it at any time of a share of the capital stock of a foreign affiliate of the corporation (in this subsection referred to as the “affiliate share”), or

(b) a foreign affiliate of a corporation resident in Canada has a loss from the disposition by it at any time of a share of the capital stock of another foreign affiliate of the corporation resident in Canada that is not excluded property (in this subsection referred to as the “affiliate share”),

the amount of the loss is deemed to be the amount determined by the formula

A – (B – C)

where


is the amount of the loss determined without reference to this subsection,


is the total of all amounts each of which is an amount received before that time, in respect of an exempt dividend on the affiliate share or on a share for which the affiliate share was substituted, by

(a) the corporation resident in Canada,

(b) a corporation related to the corporation resident in Canada,

(c) a foreign affiliate of the corporation resident in Canada, or

(d) a foreign affiliate of a corporation related to the corporation resident in Canada, and


is the total of

(a) the total of all amounts each of which is the amount by which a loss (determined without reference to this section), from another disposition at or before that time by a corporation or foreign affiliate described in the description of B of the affiliate share or a share for which the affiliate share was substituted, was reduced under this subsection in respect of the exempt dividends referred to in the description of B,

(b) the total of all amounts each of which is 4/3 of the amount by which an allowable capital loss (determined without reference to this section), of a corporation or foreign affiliate described in the description of B from a previous disposition by a partnership of the affiliate share or a share for which the affiliate share was substituted, was reduced under subsection (2.1) in respect of the exempt dividends referred to in the description of B,

(c) the total of all amounts each of which is the amount by which a loss (determined without reference to this section), from a disposition at or before that time by a corporation or foreign affiliate described in the description of B of an interest in a partnership, was reduced under subsection (2.2) in respect of the exempt dividends referred to in the description of B, and

(d) the total of all amounts each of which is 4/3 of the amount by which an allowable capital loss (determined without reference to this section), of a corporation or foreign affiliate described in the description of B from a disposition at or before that time by a partnership of an interest in another partnership, was reduced under subsection (2.3) in respect of the exempt dividends referred to in the description of B.

Marginal note:Loss limitation — disposition of share by partnership

(2.1) Where

(a) a corporation resident in Canada has an allowable capital loss from a disposition at any time by a partnership of a share of the capital stock of a foreign affiliate of the corporation (in this subsection referred to as the “affiliate share”), or

(b) a foreign affiliate of a corporation resident in Canada has an allowable capital loss from a disposition at any time by a partnership of a share of the capital stock of another foreign affiliate of the corporation resident in Canada that would not be excluded property of the affiliate if the affiliate owned the share immediately before it was disposed of (in this subsection referred to as the “affiliate share”),

the amount of the allowable capital loss is deemed to be the amount determined by the formula

A – (B – C)

where


is the amount of the allowable capital loss determined without reference to this subsection,


is 3/4 of the total of all amounts each of which was received before that time, in respect of an exempt dividend on the affiliate share or on a share for which the affiliate share was substituted, by

(a) the corporation resident in Canada,

(b) a corporation related to the corporation resident in Canada,

(c) a foreign affiliate of the corporation resident in Canada, or

(d) a foreign affiliate of a corporation related to the corporation resident in Canada, and


is the total of

(a) the total of all amounts each of which is the amount by which an allowable capital loss (determined without reference to this section), of a corporation or foreign affiliate described in the description of B from a disposition at or before that time by a partnership of the affiliate share or a share for which the affiliate share was substituted, was reduced under this subsection in respect of the exempt dividends referred to in the description of B,

(b) the total of all amounts each of which is 3/4 of the amount by which a loss (determined without reference to this section), of a corporation or foreign affiliate described in the description of B from another disposition at or before that time of the affiliate share or a share for which the affiliate share was substituted, was reduced under subsection (2) in respect of the exempt dividends referred to in the description of B,

(c) the total of all amounts each of which is 3/4 of the amount by which a loss (determined without reference to this section), from a disposition at or before that time by a corporation or foreign affiliate described in the description of B of an interest in a partnership, was reduced under subsection (2.2) in respect of the exempt dividends referred to in the description of B, and

(d) the total of all amounts each of which is the amount by which an allowable capital loss (determined without reference to this section), of a corporation or foreign affiliate described in the description of B from a disposition at or before that time by a partnership of an interest in another partnership, was reduced under subsection (2.3) in respect of exempt dividends referred to in the description of B.

Marginal note:Loss limitation — disposition of partnership interest

(2.2) Where

(a) a corporation resident in Canada has a loss from the disposition by it at any time of an interest in a partnership (in this subsection referred to as the “partnership interest”), which has a direct or indirect interest in shares of the capital stock of a foreign affiliate of the corporation resident in Canada (in this subsection referred to as “affiliate shares”), or

(b) a foreign affiliate of a corporation resident in Canada has a loss from the disposition by it at any time of an interest in a partnership (in this subsection referred to as the “partnership interest”), which has a direct or indirect interest in shares of the capital stock of another foreign affiliate of the corporation resident in Canada that would not be excluded property if the shares were owned by the affiliate (in this subsection referred to as “affiliate shares”),

the amount of the loss is deemed to be the amount determined by the formula

A – (B – C)

where


is the amount of the loss determined without reference to this subsection,


is the total of all amounts each of which was received before that time, in respect of an exempt dividend on affiliate shares or on shares for which affiliate shares were substituted, by

(a) the corporation resident in Canada,

(b) a corporation related to the corporation resident in Canada,

(c) a foreign affiliate of the corporation resident in Canada, or

(d) a foreign affiliate of a corporation related to the corporation resident in Canada, and


is the total of

(a) the total of all amounts each of which is the amount by which a loss (determined without reference to this section), from another disposition at or before that time by a corporation or foreign affiliate described in the description of B of affiliate shares or shares for which affiliate shares were substituted, was reduced under subsection (2) in respect of the exempt dividends referred to in the description of B,

(b) the total of all amounts each of which is 4/3 of the amount by which an allowable capital loss (determined without reference to this section), of a corporation or foreign affiliate described in the description of B from another disposition at or before that time by a partnership of affiliate shares or shares for which affiliate shares were substituted, was reduced under subsection (2.1) in respect of the exempt dividends referred to in the description of B,

(c) the total of all amounts each of which is the amount by which a loss (determined without reference to this section), from a disposition at or before that time by a corporation or foreign affiliate described in the description of B of an interest in a partnership, was reduced under this subsection in respect of the exempt dividends referred to in the description of B, and

(d) the total of all amounts each of which is 4/3 of the amount by which an allowable capital loss (determined without reference to this section), of a corporation or foreign affiliate described in the description of B from a disposition at or before that time by a partnership of an interest in another partnership, was reduced under subsection (2.3) in respect of the exempt dividends referred to in the description of B.

Marginal note:Loss limitation — disposition of partnership interest

(2.3) Where

(a) a corporation resident in Canada has an allowable capital loss from a partnership from a disposition at any time of an interest in another partnership that has a direct or indirect interest in shares of the capital stock of a foreign affiliate of the corporation resident in Canada (in this subsection referred to as “affiliate shares”), or

(b) a foreign affiliate of a corporation resident in Canada has an allowable capital loss from a partnership from a disposition at any time by a partnership of an interest in another partnership that has a direct or indirect interest in shares of the capital stock of a foreign affiliate of the corporation resident in Canada that would not be excluded property of the affiliate if the affiliate owned the shares immediately before the disposition (in this subsection referred to as “affiliate shares”),

the amount of the allowable capital loss is deemed to be the amount determined by the formula

A – (B – C)

where


is the amount of the allowable capital loss determined without reference to this subsection,


is 3/4 of the total of all amounts each of which was received before that time, in respect of an exempt dividend on affiliate shares or on shares for which affiliate shares were substituted, by

(a) the corporation resident in Canada,

(b) a corporation related to the corporation resident in Canada,

(c) a foreign affiliate of the corporation resident in Canada, or

(d) a foreign affiliate of a corporation related to the corporation resident in Canada, and


is the total of

(a) the total of all amounts each of which is 3/4 of the amount by which a loss (determined without reference to this section), of a corporation or foreign affiliate described in the description of B from another disposition at or before that time of affiliate shares or shares for which affiliate shares were substituted, was reduced under subsection (2) in respect of the exempt dividends referred to in the description of B,

(b) the total of all amounts each of which is the amount by which an allowable capital loss (determined without reference to this section), of a corporation or foreign affiliate described in the description of B from a disposition at or before that time by a partnership of affiliate shares or shares for which affiliate shares were substituted, was reduced under subsection (2.1) in respect of the exempt dividends referred to in the description of B,

(c) the total of all amounts each of which is 3/4 of the amount by which a loss (determined without reference to this section), from a disposition at or before that time by a corporation or foreign affiliate described in the description of B of an interest in a partnership, was reduced under subsection (2.2) in respect of the exempt dividends referred to in the description of B, and

(d) the total of all amounts each of which is the amount by which an allowable capital loss (determined without reference to this section), of a corporation or foreign affiliate described in the description of B from a disposition at or before that time by a partnership of an interest in another partnership, was reduced under this subsection in respect of the exempt dividends referred to in the description of B.

(4) Subsection 93(1.2) of the Act, as enacted by subsection (2), is amended by replacing the reference to the expression “4/3 of” with a reference to the word “twice”.

(5) Subsection 93(2) of the Act, as enacted by subsection (3), is amended by replacing the references to the expression “4/3 of” with references to the word “twice”.

(6) Subsection 93(2.1) of the Act, as enacted by subsection (3), is amended by replacing the references to the fraction “3/4” with references to the fraction “1/2”.

(7) Subsection 93(2.2) of the Act, as enacted by subsection (3), is amended by replacing the references to the expression “4/3 of” with references to the word “twice”.

(8) Subsection 93(2.3) of the Act, as enacted by subsection (3), is amended by replacing the references to the fraction “3/4” with references to the fraction “1/2”.

(9) Subsection 93(3) of the Act is replaced by the following:

Marginal note:Exempt dividends

(3) For the purposes of subsections (2) to (2.3),

(a) a dividend received by a corporation resident in Canada is an exempt dividend to the extent of the amount in respect of the dividend that is deductible from the income of the corporation for the purpose of computing the taxable income of the corporation because of paragraph 113(1)(a), (b) or (c); and

(b) a dividend received by a particular foreign affiliate of a corporation resident in Canada from another foreign affiliate of the corporation is an exempt dividend to the extent of the amount, if any, by which the portion of the dividend that was not prescribed to have been paid out of the pre-acquisition surplus of the other affiliate exceeds the total of such portion of the income or profits tax that can reasonably be considered to have been paid in respect of that portion of the dividend by the particular affiliate or by a partnership in which the particular affiliate had, at the time of the payment of the income or profits tax, a partnership interest, either directly or indirectly.

(10) Subsections (1) to (3) and (9) apply to dispositions that occur after November 1999.

(11) Subsections (4), (5) and (7) apply to taxation years that end after February 27, 2000 except that, for a taxation year of a taxpayer that includes February 28, 2000 or October 17, 2000, or began after February 28, 2000 and ended before October 17, 2000, the references to the word “twice” in subsection 93(2) of the Act, as enacted by subsection (5), and in subsection 93(2.2) of the Act, as enacted by subsection (7), shall be read as references to the expression “the fraction that is the reciprocal of the fraction in paragraph 38(a), as enacted by subsection 22(1) of the Income Tax Amendments Act, 2000, that applies to the taxpayer for the year, multiplied by”.

(12) Subsections (6) and (8) apply to taxation years that end after February 27, 2000 except that, for a taxation year of a taxpayer that includes February 28, 2000 or October 17, 2000, or began after February 28, 2000 and ended before October 17, 2000, the references to the fraction “1/2” in subsection 93(2.1) of the Act, as enacted by subsection (6), and in subsection 93(2.3) of the Act, as enacted by subsection (8), shall be read as references to the fraction in paragraph 38(a) of the Act, as enacted by subsection 22(1), that applies to the taxpayer for the year.

71. (1) The Act is amended by adding the following after section 93:

Marginal note:Shares held by a partnership

93.1 (1) For the purpose of determining whether a non-resident corporation is a foreign affiliate of a corporation resident in Canada for the purposes of subsections (2) and 20(12), sections 93 and 113, paragraph 128.1(1)(d), (and any regulations made for the purposes of those provisions), section 95 (to the extent that that section is applied for the purposes of those provisions) and section 126, where based on the assumptions contained in paragraph 96(1)(c), at any time shares of a class of the capital stock of a corporation are owned by a partnership or are deemed under this subsection to be owned by a partnership, each member of the partnership is deemed to own at that time that number of those shares that is equal to the proportion of all those shares that

(a) the fair market value of the member’s interest in the partnership at that time

is of

(b) the fair market value of all members’ interests in the partnership at that time.

Marginal note:Where dividends received by a partnership

(2) Where, based on the assumptions contained in paragraph 96(1)(c), at any time shares of a class of the capital stock of a foreign affiliate of a corporation resident in Canada (in this subsection referred to as “affiliate shares”) are owned by a partnership and at that time the affiliate pays a dividend on affiliate shares to the partnership (in this subsection referred to as the “partnership dividend”),

(a) for the purposes of sections 93 and 113 and any regulations made for the purposes of those sections, each member of the partnership is deemed to have received the proportion of the partnership dividend that

(i) the fair market value of the member’s interest in the partnership at that time

is of

(ii) the fair market value of all members’ interests in the partnership at that time;

(b) for the purposes of sections 93 and 113 and any regulations made for the purposes of those sections, the proportion of the partnership dividend deemed by paragraph (a) to have been received by a member of the partnership at that time is deemed to have been received by the member in equal proportions on each affiliate share that is property of the partnership at that time;

(c) for the purpose of applying section 113, in respect of the dividend referred to in paragraph (a), each affiliate share referred to in paragraph (b) is deemed to be owned by each member of the partnership; and

(d) notwithstanding paragraphs (a) to (c),

(i) where the corporation resident in Canada is a member of the partnership, the amount deductible by it under section 113 in respect of the dividend referred to in paragraph (a) shall not exceed the portion of the amount of the dividend included in its income pursuant to subsection 96(1), and

(ii) where another foreign affiliate of the corporation resident in Canada is a member of the partnership, the amount included in that other affiliate’s income in respect of the dividend referred to in paragraph (a) shall not exceed the amount that would be included in its income pursuant to subsection 96(1) in respect of the partnership dividend received by the partnership if the value for H in the definition “foreign accrual property income” in subsection 95(1) were nil and this Act were read without reference to this subsection.

(2) Subsection 93.1(1) of the Act, as enacted by subsection (1), applies in determining whether a non-resident corporation is, at any time after November 1999, a foreign affiliate of a taxpayer and, where a taxpayer so elects and notifies the Minister of National Revenue in writing before 2002 of its election, that subsection also applies in determining (other than for the purposes of subsection 20(12) and section 126 of the Act) whether a non-resident corporation was, at any time after 1972 and before December 1999, a foreign affiliate of the taxpayer.

(3) Subsection 93.1(2) of the Act, as enacted by subsection (1), applies in respect of dividends received after November 1999.

72. (1) Subparagraphs 94(1)(c)(i) and (ii) of the Act are replaced by the following:

(i) the trust is deemed for the purposes of this Part and sections 233.3 and 233.4 to be a person resident in Canada no part of whose taxable income is exempt because of section 149 from tax under this Part and whose taxable income for the year is the amount, if any, by which the total of

(A) the amount, if any, that would but for this subparagraph be its taxable income earned in Canada for the year,

(B) the amount that would be its foreign accrual property income for the year if

(I) except for the purpose of applying subsections 104(4) to (5.2) to days after 1998 that are determined under subsection 104(4), the trust were a non-resident corporation all the shares of which were owned by a person who was resident in Canada,

(II) the description of A in the definition “foreign accrual property income” in subsection 95(1) were, in respect of dividends received after 1998, read without reference to paragraph (b) of that description,

(III) the descriptions of B and E in that definition were, in respect of dispositions that occur after 1998, read without reference to “other than dispositions of excluded property to which none of paragraphs (2)(c), (d) and (e) apply”,

(IV) the value of C in that definition were nil, and

(V) for the purposes of computing the trust’s foreign accrual property income, the consequences of the application of subsections 104(4) to (5.2) applied in respect of days after 1998 that are determined under subsection 104(4),

(C) the amount, if any, by which the total of all amounts each of which is an amount required by subsection 91(1) or (3) to be included in computing its income for the year exceeds the total of all amounts each of which is an amount deducted by it for that year under subsection 91(2), (4) or (5), and

(D) the amount, if any, required by section 94.1 to be included in computing its income for the year

exceeds

(E) the amount, if any, by which the total of all amounts each of which is an amount deducted by it under subsection 91(2), (4) or (5) in computing its income for the year exceeds the total of all amounts each of which is an amount included in computing its income for the year because of subsection 91(1) or (3), and

(ii) for the purposes of section 126,

(A) the amount that would be determined under subparagraph (i) in respect of the trust for the year, if that subparagraph were read without reference to clause (i)(A), is deemed to be income of the trust for the year from sources in the country other than Canada in which the trust would, but for subparagraph (i), be resident, and

(B) any income or profits tax paid by the trust for the year (other than any tax paid because of this section), to the extent that it can reasonably be regarded as having been paid in respect of that income, is deemed to be non-business income tax paid by the trust to the government of that country, and

(2) Subsection (1) applies to the 1999 and subsequent taxation years.

73. (1) 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+C) – (D+E+F+G+H)

(2) The description of A.1 in the definition “foreign accrual property income” in subsection 95(1) of the Act is amended by replacing the reference to the expression “4/3 of” with a reference to the word “twice”.

(3) The description of F in the definition “foreign accrual property income” in subsection 95(1) of the Act is replaced by the following:


is the amount claimed by the taxpayer, which amount may not be greater than the amount prescribed to be the deductible loss of the affiliate for the year, and

(4) The definition “foreign accrual property income” in subsection 95(1) of the Act is amended by striking out the word “and” at the end of the description of F, by adding the word “and” at the end of the description of G and by adding the following after the description of G:


is

(a) where the affiliate was a member of a partnership at the end of the fiscal period of the partnership that ended in the year and the partnership received a dividend at a particular time in that fiscal period from a corporation that was, for the purposes of sections 93 and 113, a foreign affiliate of the taxpayer at that particular time, the portion of the amount of that dividend that is included in the value of A in respect of the affiliate for the year and that is deemed by paragraph 93.1(2)(a) to have been received by the affiliate for the purposes of sections 93 and 113, and

(b) in any other case, nil;

(5) The portion of paragraph 95(2)(a.3) of the Act before subparagraph (iii) is replaced by the following:

(a.3) in computing the income from a business other than an active business for a taxation year of a foreign affiliate of a taxpayer there shall be included the income of the affiliate for the year derived directly or indirectly from indebtedness and lease obligations (which, for the purposes of this paragraph, includes the income of the affiliate for the year from the purchase and sale of indebtedness and lease obligations on its own account, but does not include excluded income)

(i) of persons resident in Canada, or

(ii) in respect of businesses carried on in Canada

unless more than 90% of the gross revenue of the affiliate derived directly or indirectly from indebtedness and lease obligations (other than excluded revenue) was derived directly or indirectly from indebtedness and lease obligations of non-resident persons with whom the affiliate deals at arm’s length and, where this paragraph applies to include income of the affiliate for the year in the income of the affiliate from a business other than an active business,

(6) Paragraph 95(2)(g) of the Act is replaced by the following:

(g) where, because of a fluctuation in the value of the currency of a country other than Canada relative to the value of Canadian currency, a particular foreign affiliate of a taxpayer in respect of which the taxpayer has a qualifying interest throughout a taxation year of the particular affiliate has earned income or incurred a loss or realized a capital gain or a capital loss in the year, in reference to

(i) a debt obligation that was owing to

(A) another foreign affiliate of the taxpayer in respect of which the taxpayer has a qualifying interest throughout the year or any other non-resident corporation to which the particular affiliate and the taxpayer are related throughout the year (referred to in this paragraph as a “qualified foreign corporation”), or

(B) the particular affiliate by a qualified foreign corporation,

(ii) the redemption, cancellation or acquisition of a share of the capital stock of, or the reduction of the capital of, the particular affiliate or another foreign affiliate of the taxpayer in respect of which the taxpayer has a qualifying interest throughout the year, or

(iii) the disposition to a qualified foreign corporation of a share of the capital stock of another foreign affiliate of the taxpayer in respect of which the taxpayer has a qualifying interest throughout the year,

that income, gain or loss, as the case may be, is deemed to be nil;

(7) Subsection 95(2) of the Act is amended by adding the following after paragraph (g.1):

(g.2) for the purpose of computing the foreign accrual property income of a foreign affiliate of any taxpayer resident in Canada for a taxation year of the affiliate, an election made pursuant to paragraph 86.1(2)(f) in respect of a distribution received by the affiliate in a particular taxation year of the affiliate is deemed to have been filed under that paragraph by the affiliate if

(i) where there is only one taxpayer resident in Canada in respect of whom the affiliate is a controlled foreign affiliate, the election is filed by the taxpayer with the taxpayer’s return of income for the taxpayer’s taxation year in which the particular year of the affiliate ends, and

(ii) where there is more than one taxpayer resident in Canada in respect of whom the affiliate is a controlled foreign affiliate, all of those taxpayers jointly elect in writing and each of them files the joint election with the Minister with their return of income for their taxation year in which the particular year of the affiliate ends;

(8) Paragraph 95(2)(h) of the Act is repealed.

(9) The portion of subsection 95(2.2) of the Act before paragraph (a) is replaced by the following:

Marginal note:Rule for subsection (2)

(2.2) For the purpose of subsection (2),

(10) Subsection 95(2.5) of the Act is amended by adding the following in alphabetical order:

“excluded income” and “excluded revenue”

« revenu exclu »

“excluded income” and “excluded revenue” for a taxation year in respect of a foreign affiliate of a taxpayer mean, respectively, income or revenue, that is

(a) derived directly or indirectly from a specified deposit with a prescribed financial institution,

(b) derived directly or indirectly from a lease obligation of a person (other than the taxpayer or a person that does not deal at arm’s length with the taxpayer) relating to the use of property outside Canada, or

(c) included in computing the affiliate’s income for the year from carrying on a business through a permanent establishment in Canada;

(11) The portion of paragraph 95(6)(a) of the Act before subparagraph (i) is replaced by the following:

(a) where any person or partnership has a right under a contract, in equity or otherwise, either immediately or in the future and either absolutely or contingently, to, or to acquire, shares of the capital stock of a corporation or interests in a partnership and

(12) Subparagraph 95(6)(a)(ii) of the Act is replaced by the following:

(ii) it can reasonably be considered that the principal purpose for the existence of the right is to permit any person to avoid, reduce or defer the payment of tax or any other amount that would otherwise be payable under this Act, those shares or partnership interests, as the case may be, are deemed to be owned by that person or partnership; and

(13) Paragraph 95(6)(b) of the Act is replaced by the following:

(b) where a person or partnership acquires or disposes of shares of the capital stock of a corporation or interests in a partnership, either directly or indirectly, and it can reasonably be considered that the principal purpose for the acquisition or disposition is to permit a person to avoid, reduce or defer the payment of tax or any other amount that would otherwise be payable under this Act, that acquisition or disposition is deemed not to have taken place, and where the shares or partnership interests were unissued by the corporation or partnership immediately before the acquisition, those shares or partnership interests, as the case may be, are deemed not to have been issued.

(14) Subsections (1), (4) and (11) to (13) apply after November 1999.

(15) Subsection (2) applies to taxation years that end after February 27, 2000 except that, where a taxation year of a foreign affiliate of a taxpayer includes February 28, 2000 or October 17, 2000, or began after February 28, 2000 and ended before October 17, 2000, the reference to the word “twice” in the description of A.1 in the definition “foreign accrual property income” in subsection 95(1) of the Act, as enacted by subsection (2), shall be read as a reference to the expression “the fraction that is the reciprocal of the fraction in paragraph 38(a), as enacted by subsection 22(1) of the Income Tax Amendments Act, 2000, that applies to the foreign affiliate for the year, multiplied by”.

(16) Subsection (3) applies to taxation years of foreign affiliates that begin after November 1999.

(17) Subsections (5) and (10) apply to taxation years of foreign affiliates that begin after 1999 except that, where a taxpayer so elects in writing and files the election with the Minister of National Revenue on or before the taxpayer’s filing-due date for the taxation year that includes the day on which this Act receives royal assent, paragraph 95(2)(a.3) of the Act, as enacted by subsection (5), and subsection 95(2.5) of the Act, as enacted by subsection (10), apply to taxation years, of all of the taxpayer’s foreign affiliates, that begin after 1994 except that, where there has been a change in the taxation year of a particular foreign affiliate of a taxpayer in 1994 and after February 22, 1994, the enacted provisions apply to taxation years of the particular foreign affiliate of the taxpayer that end after 1994, unless

(a) the particular foreign affiliate had requested that change in the taxation year in writing before February 22, 1994 from the income taxation authority of the country in which it was resident and subject to income taxation; or

(b) the first taxation year of the particular foreign affiliate that began after 1994 began at a time in 1995 that is earlier than the time that it would have begun if there had not been that change in the taxation year of the particular foreign affiliate,

and, notwithstanding subsections 152(4) to (5) of the Act, any assessment of a taxpayer’s tax payable under the Act for any of those taxation years shall be made that is necessary to take into account the application of subsections (5) and (10).

(18) Subsections (6), (8) and (9) apply to taxation years of a foreign affiliate of a taxpayer that begin after November 1999 except that, where the taxpayer so elects in writing and files the election with the Minister of National Revenue on or before the day of the taxpayer’s filing-due date for the taxation year that includes the day on which this Act receives royal assent, those subsections apply to taxation years, of all of its foreign affiliates, that began after 1994 and, notwithstanding subsections 152(4) to (5) of the Act, any assessment of a taxpayer’s tax payable under the Act for any of those taxation years shall be made that is necessary to take into account the application of subsections (6), (8) and (9).

(19) Subsection (7) applies to distributions received after 1997 except that the election referred to in paragraph 95(2)(g.2) of the Act, as enacted by subsection (7), is deemed to be filed on a timely basis if it is filed with the Minister of National Revenue before the day that is 90 days after the day on which this Act receives royal assent.

74. (1) Paragraph 96(1)(d) of the Act is replaced by the following:

(d) each income or loss of the partnership for a taxation year were computed as if

(i) this Act were read without reference to paragraphs 12(1)(z.5) and 20(1)(v.1), section 34.1, subsection 59(1), paragraph 59(3.2)(c.1) and subsections 66.1(1), 66.2(1) and 66.4(1), and

(ii) no deduction were permitted under any of section 29 of the Income Tax Application Rules, subsections 34.2(4) and 65(1) and sections 66, 66.1, 66.2, 66.21 and 66.4;

(2) The portion of subsection 96(1.7) of the Act before the formula is replaced by the following:

Marginal note:Gains and losses

(1.7) Notwithstanding subsection (1) or section 38, where in a particular taxation year of a taxpayer, the taxpayer is a member of a partnership with a fiscal period that ends in the particular year, the amount of a taxable capital gain (other than that part of the amount that can reasonably be attributed to an amount deemed under subsection 14(1.1) to be a taxable capital gain of the partnership), allowable capital loss or allowable business investment loss of the taxpayer for the particular year determined in respect of the partnership is the amount determined by the formula

(3) The descriptions of A and B in subsection 96(1.7) of the Act are replaced by the following:


is the amount of the taxpayer’s taxable capital gain (other than that part of the amount that can be attributed to an amount deemed under subsection 14(1.1) to be a taxable capital gain of the partnership), allowable capital loss or allowable business investment loss, as the case may be, for the particular year otherwise determined under this section in respect of the partnership;


is the relevant fraction that applies under paragraph 38(a), (a.1), (a.2), (b) or (c) for the particular year in respect of the taxpayer; and

(4) Section 96 of the Act is amended by adding the following after subsection (1.7):

Marginal note:Application

(1.71) Where the fraction referred to in the description of C in subsection (1.7) cannot be determined by a taxpayer in respect of a fiscal period of a partnership that ended before February 28, 2000, or includes February 28, 2000 or October 17, 2000, for the purposes of subsection (1.7), the fraction is deemed to be

(a) where the fiscal period ended before or began before February 28, 2000, 3/4;

(b) where the fiscal period began after February 27, 2000 and before October 18, 2000, 2/3; and

(c) in any other case, 1/2.

(5) Clause 96(2.1)(b)(iv)(A) of the Act is replaced by the following:

(A) the foreign resource pool expenses, if any, incurred by the partnership in the fiscal period,

(6) Paragraph 96(2.4)(a) 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 or misconduct that another member of the partnership or an employee, agent or representative of the partnership commits in the course of the partnership business while the partnership is a limited liability partnership);

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

Marginal note:Agreement or election of partnership members

(3) Where 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) and (16) and 14(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), (9), (10) and (11), section 80.04, subsections 86.1(2), 97(2), 139.1(16) and (17) and 249.1(4) and (6) that, but for this subsection, would be a valid agreement, designation or election,

(8) Subsections (1), (3), (4) and (5) apply to fiscal periods that begin after 2000.

(9) Subsection (2) applies to taxation years that end after February 27, 2000.

(10) Subsection (6) applies after 1997.

(11) Subsection (7) applies after 1999.

75. (1) Subparagraph 98(3)(g)(iii) of the Act is replaced by the following:

(iii) for the purpose of determining after the particular time the amount required by paragraph 14(1)(b) to be included in computing the person’s income in respect of any subsequent disposition of property of the business, the value determined for Q in the definition “cumulative eligible capital” in subsection 14(5) is deemed to be the amount, if any, of that person’s percentage of the value determined for Q in that definition in respect of the partnership’s business immediately before the particular time.

(2) Subparagraph 98(5)(h)(ii) of the Act is replaced by the following:

(ii) for the purpose of determining after the particular time the amount required by paragraph 14(1)(b) to be included in computing the proprietor’s income in respect of any subsequent disposition of property of the business, the value determined for Q in the definition “cumulative eligible capital” in subsection 14(5) is deemed to be the value, if any, determined for Q in that definition in respect of the partnership’s business immediately before the particular time.

(3) Subsections (1) and (2) apply in respect of taxation years that end after February 27, 2000.

76. (1) Paragraph 100(1)(a) of the Act is amended by replacing the reference to the fraction “3/4” with a reference to the fraction “1/2”.

(2) Subsection (1) applies to taxation years that end after February 27, 2000 except that, where a taxation year of a taxpayer includes February 28, 2000 or October 17, 2000, or began after February 28, 2000 and ended before October 17, 2000, the reference to the fraction “1/2” in paragraph 100(1)(a) of the Act, as enacted by subsection (1), shall be read as a reference to the fraction in paragraph 38(a) of the Act, as enacted by subsection 22(1), that applies to the taxpayer for the year.

77. (1) Section 101 of the Act is amended by replacing the reference to the fraction “3/4” with a reference to the fraction “1/2” and by replacing the reference to the expression “4/3 of” with a reference to the word “twice”.

(2) Subsection (1) applies to taxation years that end after February 27, 2000 except that, in applying section 101 of the Act, as enacted by subsection (1), to a taxpayer’s taxation year that includes February 28, 2000 or October 17, 2000, or began after February 28, 2000 and ended before October 17, 2000,

(a) the reference to the fraction “1/2” in section 101 of the Act, as enacted by subsection (1), shall be read as a reference to the fraction in paragraph 38(a) of the Act, as enacted by subsection 22(1), that applies to the taxpayer for the year; and

(b) the reference to the word “twice” in section 101 of the Act, as enacted by subsection (1), shall be read as a reference to the expression “the fraction that is the reciprocal of the fraction in paragraph 38(a), as enacted by subsection 22(1) of the Income Tax Amendments Act, 2000, that applies to the taxpayer for the year, multiplied by”.

78. (1) Subsection 104(1) of the Act is replaced by the following:

Marginal note:Reference to trust or estate

104. (1) In this Act, a reference to a trust or estate (in this subdivision referred to as a “trust”) shall, unless the context otherwise requires, be read to include a reference to the trustee, executor, administrator, liquidator of a succession, heir or other legal representative having ownership or control of the trust property, but, except for the purposes of this subsection, subsection (1.1), subparagraph (b)(v) of the definition “disposition” in subsection 248(1) and paragraph (k) of that definition, a trust is deemed not to include an arrangement under which the trust can reasonably be considered to act as agent for all the beneficiaries under the trust with respect to all dealings with all of the trust’s property unless the trust is described in any of paragraphs (a) to (e.1) of the definition “trust” in subsection 108(1).

Restricted meaning of “beneficiary”

(1.1) Notwithstanding subsection 248(25.1) and for the purposes of subsection (1), paragraph (4)(a.4), subparagraph 73(1.02)(b)(ii) and paragraph 107.4(1)(e), a person or partnership is deemed not to be a beneficiary under a trust at a particular time where the person or partnership is beneficially interested in the trust at the particular time solely because of

(a) a right that may arise as a consequence of the terms of the will or other testamentary instrument of an individual who, at the particular time, is a beneficiary under the trust;

(b) a right that may arise as a consequence of the law governing the intestacy of an individual who, at that time, is a beneficiary under the trust;

(c) a right as a shareholder under the terms of the shares of the capital stock of a corporation that, at the particular time, is a beneficiary under the trust;

(d) a right as a member of a partnership under the terms of the partnership agreement, where, at the particular time, the partnership is a beneficiary under the trust; or

(e) any combination of rights described in paragraphs (a) to (d).

(2) The portion of subsection 104(4) of the Act before paragraph (a) is replaced by the following:

Marginal note:Deemed disposition by trust

(4) Every trust is, at the end of each of the following days, deemed to have disposed of each property of the trust (other than exempt property) that was capital property (other than excluded property or depreciable property) or land included in the inventory of a business of the trust for proceeds equal to its fair market value (determined with reference to subsection 70(5.3)) at the end of that day and to have reacquired the property immediately after that day for an amount equal to that fair market value, and for the purposes of this Act those days are

(3) Paragraph 104(4)(a) of the Act is amended by striking out the word “or” at the end of subparagraph (i.1), by adding the word “or” at the end of subparagraph (ii) and by replacing the portion after subparagraph (ii) with the following:

(ii.1) is a trust (other than a trust the terms of which are described in clause (iv)(A) that elects in its return of income under this Part for its first taxation year that this subparagraph not apply) that was created after 1999 by a taxpayer during the taxpayer’s lifetime and that, at any time after 1999, was a trust

under which

(iii) the taxpayer’s spouse or common-law partner was entitled to receive all of the income of the trust that arose before the spouse’s or common-law partner’s death and no person except the spouse or common-law partner could, before the spouse’s or common-law partner’s death, receive or otherwise obtain the use of any of the income or capital of the trust, or

(iv) in the case of a trust described in subparagraph (ii.1) created by a taxpayer who had attained 65 years of age at the time the trust was created,

(A) the taxpayer was entitled to receive all of the income of the trust that arose before the taxpayer’s death and no person except the taxpayer could, before the taxpayer’s death, receive or otherwise obtain the use of any of the income or capital of the trust,

(B) the taxpayer or the taxpayer’s spouse was, in combination with the spouse or the taxpayer, as the case may be, entitled to receive all of the income of the trust that arose before the later of the death of the taxpayer and the death of the spouse and no other person could, before the later of those deaths, receive or otherwise obtain the use of any of the income or capital of the trust, or

(C) the taxpayer or the taxpayer’s common-law partner was, in combination with the common-law partner or the taxpayer, as the case may be, entitled to receive all of the income of the trust that arose before the later of the death of the taxpayer and the death of the common-law partner and no other person could, before the later of those deaths, receive or otherwise obtain the use of any of the income or capital of the trust,

the day on which the death or the later death, as the case may be, occurs;

(4) Subsection 104(4) of the Act is amended by adding the following after paragraph (a.1):

(a.2) where the trust makes a distribution to a beneficiary in respect of the beneficiary’s capital interest in the trust, it is reasonable to conclude that the distribution was financed by a liability of the trust and one of the purposes of incurring the liability was to avoid taxes otherwise payable under this Part as a consequence of the death of any individual, the day on which the distribution is made (determined as if a day ends for the trust immediately after the time at which each distribution is made by the trust to a beneficiary in respect of the beneficiary’s capital interest in the trust);

(a.3) where property (other than property described in any of subparagraphs 128.1(4)(b)(i) to (iii)) has been transferred by a taxpayer after December 17, 1999 to the trust in circumstances to which subsection 73(1) applied, it is reasonable to conclude that the property was so transferred in anticipation that the taxpayer would subsequently cease to reside in Canada and the taxpayer subsequently ceases to reside in Canada, the first day after that transfer during which the taxpayer ceases to reside in Canada (determined as if a day ends for the trust immediately after each time at which the taxpayer ceases to be resident in Canada);

(a.4) where the trust is a trust to which property was transferred by a taxpayer who is an individual (other than a trust) in circumstances in which section 73 or subsection 107.4(3) applied, the transfer did not result in a change in beneficial ownership of that property and no person (other than the taxpayer) or partnership has any absolute or contingent right as a beneficiary under the trust (determined with reference to subsection (1.1)), the day on which the death of the taxpayer occurs;

(5) Subparagraph 104(4)(b)(iii) of the Act is replaced by the following:

(iii) where applicable, the day determined under paragraph (a), (a.1) or (a.4) as those paragraphs applied from time to time after 1971; and

(6) 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.4)) that is, because of this subsection, a day on which the trust is deemed to have disposed of each such property.

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

Marginal note:Depreciable property

(5) Every trust is, at the end of each day determined under subsection (4) in respect of the trust, deemed to have disposed of each property of the trust (other than exempt property) that was a depreciable property of a prescribed class of the trust for proceeds equal to its fair market value at the end of that day and to have reacquired the property immediately after that day at a capital cost (in this subsection referred to as the “deemed capital cost”) equal to that fair market value, except that

(8) The portion of subsection 104(5.2) of the Act before paragraph (b) is replaced by the following:

Marginal note:Resource property

(5.2) Where at the end of a day determined under subsection (4) in respect of a trust, the trust owns a Canadian resource property (other than an exempt property) or a foreign resource property (other than an exempt property),

(a) for the purposes of determining the amounts under subsection 59(1), paragraphs 59(3.2)(c) and (c.1), subsections 66(4) and 66.2(1), the definition “cumulative Canadian development expense” in subsection 66.2(5), the definition “cumulative foreign resource expense” in subsection 66.21(1), subsection 66.4(1) and the definition “cumulative Canadian oil and gas property expense” in subsection 66.4(5), the trust is deemed

(i) to have a taxation year (in this subsection referred to as the “old taxation year”) that ended at the end of that day and a new taxation year that begins immediately after that day, and

(ii) to have disposed, immediately before the end of the old taxation year, of each of those properties for proceeds that became receivable at that time equal to its fair market value at that time and to have reacquired, at the beginning of the new taxation year, each such property for an amount equal to that fair market value; and

(9) Paragraph 104(5.2)(b) of the Act is amended by striking out the word “and” at the end of subparagraph (i) and by adding the following after subparagraph (i):

(i.1) include in computing its income for the particular taxation year the amount, if any, determined under paragraph 59(3.2)(c.1) in respect of the old taxation year and the amount so included is, for the purpose of determining the value of B in the definition “cumulative foreign resource expense” in subsection 66.21(1), deemed to have been included in computing its income for a preceding taxation year, and

(10) Subsection 104(5.3) of the Act is amended by adding the word “and” at the end of paragraph (b.1) and by replacing the portion of paragraph (c) before subparagraph (i) with the following:

(c) subsection 107.4(3) does not apply to a disposition by the trust during the period

(11) Subsection 104(5.3) of the Act is amended by striking out the word “and” at the end of paragraph (c) and by repealing paragraph (d).

(12) The portion of subsection 104(5.8) of the Act before paragraph (a) is replaced by the following:

Marginal note:Trust transfers

(5.8) Where capital property (other than excluded property), land included in inventory, Canadian resource property or foreign resource property is transferred at a particular time by a trust (in this subsection referred to as the “transferor trust”) to another trust (in this subsection referred to as the “transferee trust”) in circumstances in which subsection 107(2) or 107.4(3) or paragraph (f) of the definition “disposition” in subsection 248(1) applies,

(13) The portion of subparagraph 104(5.8)(a)(i) of the Act before clause (A) is replaced by the following:

(i) subject to paragraphs (b) to (b.3), the first day (in this subsection referred to as the “disposition day”) that ends at or after the particular time that would, if this section were read without reference to paragraphs (4)(a.2) and (a.3), be determined in respect of the transferee trust is deemed to be the earliest of

(14) Clause 104(5.8)(a)(i)(C) of the Act is replaced by the following:

(C) the first day that ends at or after the particular time, where

(I) the transferor trust is a joint spousal or common-law partner trust, a post-1971 spousal or common-law partner trust or a trust described in the definition “pre-1972 spousal trust” in subsection 108(1), and

(II) the spouse or common-law partner referred to in paragraph (4)(a) or in the definition “pre-1972 spousal trust” in subsection 108(1) is alive at the particular time,

(C.1) the first day that ends at or after the particular time, where

(I) the transferor trust is an alter ego trust, a trust to which paragraph (4)(a.4) applies or a joint spousal or common-law partner trust, and

(II) the taxpayer referred to in paragraph (4)(a) or (a.4), as the case may be, is alive at the particular time, and

(15) Paragraph 104(5.8)(b) of the Act is replaced by the following:

(b) paragraph (a) does not apply in respect of the transfer where

(i) the transferor trust is a post-1971 spousal or common-law partner trust or a trust described in the definition “pre-1972 spousal trust” in subsection 108(1),

(ii) the spouse or common-law partner referred to in paragraph (4)(a) or in the definition “pre-1972 spousal trust” in subsection 108(1) is alive at the particular time, and

(iii) the transferee trust is a post-1971 spousal or common-law partner trust or a trust described in the definition “pre-1972 spousal trust” in subsection 108(1);

(b.1) paragraph (a) does not apply in respect of the transfer where

(i) the transferor trust is an alter ego trust,

(ii) the taxpayer referred to in paragraph (4)(a) is alive at the particular time, and

(iii) the transferee trust is an alter ego trust;

(b.2) paragraph (a) does not apply in respect of the transfer where

(i) the transferor trust is a joint spousal or common-law partner trust,

(ii) either the taxpayer referred to in paragraph (4)(a), or the spouse or common-law partner referred to in that paragraph, is alive at the particular time, and

(iii) the transferee trust is a joint spousal or common-law partner trust;

(b.3) paragraph (a) does not apply in respect of the transfer where

(i) the transferor trust is a trust to which paragraph (4)(a.4) applies,

(ii) the taxpayer referred to in paragraph (4)(a.4) is alive at the particular time, and

(iii) the transferee trust is a trust to which paragraph (4)(a.4) applies; and

(16) Subsection 104(6) of the Act is amended by striking out the word “and” at the end of paragraph (a.2) and by adding the following after paragraph (a.2):

(a.3) in the case of an inter vivos trust deemed by subsection 143(1) to exist in respect of a congregation that is a constituent part of a religious organization, such part of its income for the year as became payable in the year to a beneficiary; and

(17) Clauses 104(6)(b)(ii)(A) and (B) of the Act are replaced by the following:

(A) is a post-1971 spousal or common-law partner trust that was created after December 20, 1991, or

(B) would be a post-1971 spousal or common-law partner trust if the reference in paragraph (4)(a) to “at the time it was created” were read as “on December 20, 1991”,

(18) Paragraph 104(6)(b) of the Act is amended by striking out the word “and” at the end of subparagraph (ii) and by replacing subparagraph (iii) with the following:

(ii.1) where the trust is an alter ego trust or a joint spousal or common-law partner trust and the death or later death, as the case may be, referred to in subparagraph (4)(a)(iv) has not occurred before the end of the year, such part of the amount that, but for this subsection and subsections (12), 12(10.2) and 107(4), would be its income as became payable in the year to a beneficiary (other than a taxpayer, spouse or common-law partner referred to in clause (4)(a)(iv)(A), (B) or (C)) or was included under subsection 105(2) in computing the income of a beneficiary (other than such a taxpayer, spouse or common-law partner), and

(iii) where the trust is an alter ego trust, a joint spousal or common-law partner trust, a trust to which paragraph (4)(a.4) applies or a post-1971 spousal or common-law partner trust and the death or the later death, as the case may be, referred to in paragraph (4)(a) or (a.4) in respect of the trust occurred on a day in the year, the amount, if any, by which

(A) the maximum amount that would be deductible under this subsection in computing the trust’s income for the year if this subsection were read without reference to this subparagraph

exceeds the total of

(B) the amount that, but for this subsection and subsections (12), 12(10.2) and 107(4), would be its income that became payable in the year to the taxpayer, spouse or common-law partner referred to in subparagraph (4)(a)(iii), clause (4)(a)(iv)(A), (B) or (C) or paragraph (4)(a.4), as the case may be, and

(C) the amount that would be the trust’s income for the year if that income were computed without reference to this subsection and subsection (12) and as if the year began immediately after the end of the day.

(19) Subsection 104(13) of the Act is replaced by the following:

Marginal note:Income of beneficiary

(13) There shall be included in computing the income for a particular taxation year of a beneficiary under a trust such of the following amounts as are applicable:

(a) in the case of a trust (other than a trust referred to in paragraph (a) of the definition “trust” in subsection 108(1)), such part of the amount that, but for subsections (6) and (12), would be the trust’s income for the trust’s taxation year that ended in the particular year as became payable in the trust’s year to the beneficiary; and

(b) in the case of a trust governed by an employee benefit plan to which the beneficiary has contributed as an employer, such part of the amount that, but for subsections (6) and (12), would be the trust’s income for the trust’s taxation year that ended in the particular year as was paid in the trust’s year to the beneficiary.

(20) Paragraphs 104(15)(a) and (b) of the Act are replaced by the following:

(a) where the trust is an alter ego trust, a joint spousal or common-law partner trust, a post-1971 spousal or common-law partner trust or a trust described in the definition “pre-1972 spousal trust” in subsection 108(1) at the end of the year and a beneficiary, referred to in paragraph (4)(a) or in that definition, is alive at the end of the year, an amount equal to

(i) if the preferred beneficiary is a beneficiary so referred to, the trust’s accumulating income for the year, and

(ii) in any other case, nil;

(b) where paragraph (a) does not apply and the preferred beneficiary’s interest in the trust is not solely contingent on the death of another beneficiary who has a capital interest in the trust and who does not have an income interest in the trust, the trust’s accumulating income for the year; and

(21) The portion of subsection 104(19) of the Act after paragraph (b) is replaced by the following:

is, if so designated by the trust in respect of the beneficiary in its return of income for the year, deemed, for the purposes of paragraphs 82(1)(b) and 107(1)(c) and (d) and section 112, not to have been received by the trust, and for the purposes of this Act (other than Part XIII), to be a taxable dividend on the share received by the beneficiary in the particular year from the corporation.

(22) The portion of subsection 104(21.2) of the Act before paragraph (a) is replaced by the following:

Marginal note:Beneficiaries’ taxable capital gain

(21.2) Where, for the purposes of subsection (21), a personal trust or a trust referred to in subsection 7(2) designates an amount in respect of a beneficiary in respect of its net taxable capital gains for a taxation year (in this subsection referred to as the “designation year”),

(23) Section 104 of the Act is amended by adding the following after subsection (21.3):

Marginal note:Deemed gains

(21.4) Where an amount is designated in respect of a beneficiary by a trust for a particular taxation year of the trust that includes February 28, 2000 or October 17, 2000 and that amount is, because of subsection (21), deemed to be a taxable capital gain of the beneficiary from the disposition of capital property for the taxation year of the beneficiary in which the particular taxation year of the trust ends (in this subsection referred to as the “allocated gain”),

(a) the beneficiary is deemed to have realized capital gains (in this subsection referred to as the “deemed gains”) from the disposition of capital property in the beneficiary’s taxation year in which the particular taxation year ends equal to the amount, if any, by which

(i) the amount determined when the amount of the allocated gain is divided by the fraction in paragraph 38(a) that applies to the trust for the particular taxation year

exceeds

(ii) the amount claimed by the beneficiary not exceeding the beneficiary’s exempt capital gains balance for the year in respect of the trust;

(b) notwithstanding subsection (21) and except as a consequence of the application of paragraph (a), the amount of the allocated gain shall not be included in computing the beneficiary’s income for the beneficiary’s taxation year in which the particular taxation year ends;

(c) the trust shall disclose to the beneficiary in prescribed form the portion of the deemed gains that are in respect of capital gains realized on dispositions of property that occurred before February 28, 2000, after February 27, 2000 and before October 18, 2000, and after October 17, 2000 and, if it does not do so, the deemed gains are deemed to be in respect of capital gains realized on dispositions of property that occurred before February 28, 2000;

(d) where a trust so elects under this paragraph in its return of income for the year,

(i) the portion of the deemed gains that are in respect of capital gains from dispositions of property that occurred before February 28, 2000 is deemed to be that proportion of the deemed gains that the number of days that are in the particular year and before February 28, 2000 is of the number of days that are in the particular year,

(ii) the portion of the deemed gains that are in respect of capital gains from dispositions of property that occurred in the year and in the period that began at the beginning of February 28, 2000 and ended at the end of October 17, 2000, is deemed to be that proportion of the deemed gains that the number of days that are in the year and in that period is of the number of days that are in the particular year, and

(iii) the portion of the deemed gains that are in respect of capital gains from dispositions of property that occurred in the year and in the period that begins at the beginning of October 18, 2000 and ends at the end of the particular year, is deemed to be that proportion of the deemed gains that the number of days that are in the year and in that period is of the number of days that are in the particular year; and

(e) no amount may be claimed by the beneficiary under subsection 39.1(3) in respect of the allocated gain.

Marginal note:Deemed gains

(21.5) Where no amount is designated by a trust under subsection (21) in respect of its net taxable capital gains for a taxation year that includes February 28, 2000 or October 17, 2000, the trust has net capital gains or net capital losses from the disposition of property in the year and the trust so elects under this subsection in its return of income for the year,

(a) the portion of the net capital gains or net capital losses that are in respect of capital gains and losses from dispositions of property that occurred before February 28, 2000 is deemed to be that proportion of the net capital gains or net capital losses, as the case may be, that the number of days that are in the year and before February 28, 2000 is of the number of days that are in the year,

(b) the portion of the net capital gains or net capital losses that are in respect of capital gains and losses from dispositions of property that occurred in the year and in the period that began at the beginning of February 28, 2000 and ended at the end of October 17, 2000, is deemed to be that proportion of the net capital gains or net capital losses, as the case may be, that the number of days that are in the year and in that period is of the number of days that are in the year, and

(c) the portion of the net capital gains or net capital losses that are in respect of capital gains and losses from dispositions of property that occurred in the year and in the period that began at the beginning of October 18, 2000 and ended at the end of the year, is deemed to be that proportion of the net capital gains or net capital losses, as the case may be, that the number of days that are in the year and in that period is of the number of days that are in the year,

and, for the purpose of this subsection,

(d) the net capital gains of a trust from dispositions of property in a year is the amount, if any, by which the trust’s capital gains from dispositions of property in the year exceeds the trust’s capital losses from dispositions of property in the year, and

(e) the net capital losses of a trust from dispositions of property in a year is the amount, if any, by which the trust’s capital losses from dispositions of property in the year exceeds the trust’s capital gains from dispositions of property in the year.

Marginal note:Deemed gains — subsection (21.4) applies

(21.6) Where a taxpayer is deemed by subsection (21.4) to have realized capital gains from the disposition of capital property in a taxation year of the taxpayer in respect of dispositions of property by a trust of which the taxpayer is a beneficiary,

(a) if the deemed gains are in respect of capital gains of the trust from dispositions of property before February 28, 2000 and the taxation year of the taxpayer includes February 27, 2000, the deemed gains are deemed to be a capital gain of the taxpayer from the disposition by the taxpayer of capital property in the taxpayer’s taxation year and before February 28, 2000;

(b) if the deemed gains are in respect of capital gains of the trust from dispositions of property before February 28, 2000 and the taxation year of the taxpayer began after February 27, 2000 and ended before October 18, 2000, 9/8 of the deemed gains is deemed to be a capital gain of the taxpayer from the disposition by the taxpayer of capital property in the taxpayer’s taxation year;

(c) if the deemed gains are in respect of capital gains of the trust from dispositions of property before February 28, 2000 and the taxation year of the taxpayer began after February 27, 2000 and ended after October 17, 2000, 9/8 of the deemed gains is deemed to be a capital gain of the taxpayer from the disposition by the taxpayer of capital property in the taxpayer’s taxation year and before October 18, 2000;

(d) if the deemed gains are in respect of capital gains of the trust from dispositions of property before February 28, 2000 and the taxation year of the taxpayer began after October 17, 2000, 3/2 of the deemed gains is deemed to be a capital gain of the taxpayer from the disposition by the taxpayer of capital property in the taxpayer’s taxation year;

(e) if the deemed gains are in respect of capital gains of the trust from dispositions of property after February 27, 2000 and before October 18, 2000, and the taxation year of the taxpayer began after October 17, 2000, 4/3 of the deemed gains is deemed to be a capital gain of the taxpayer from the disposition by the taxpayer of capital property in the taxpayer’s taxation year;

(f) if the deemed gains are in respect of capital gains of the trust from dispositions of property after February 27, 2000 and before October 18, 2000 and the taxation year of the taxpayer includes February 28, 2000 and October 17, 2000, the deemed gains are deemed to be a capital gain of the taxpayer from the disposition by the taxpayer of capital property in the taxpayer’s taxation year and in the period that began after February 27, 2000 and ended before October 18, 2000;

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

(h) in any other case, the deemed gains are deemed to be a capital gain of the taxpayer from the disposition of capital property by the taxpayer in the taxpayer’s taxation year and after October 17, 2000.

Marginal note:Deemed gains — subsection (21.4) does not apply

(21.7) Where an amount is designated under subsection (21) in respect of a beneficiary by a trust for a particular taxation year of the trust that ends in a taxation year of the beneficiary that includes February 28, 2000 or October 17, 2000 and subsection (21.4) does not apply in respect of the designated amount,

(a) notwithstanding subsection (21) and except as a consequence of the application of paragraph (b), the designated amount shall not be included in computing the beneficiary’s income;

(b) the beneficiary is deemed to have a capital gain from the disposition by the beneficiary of capital property on the day on which the particular taxation year ends equal to the amount, if any, by which

(i) the amount determined by dividing the designated amount by the fraction in paragraph 38(a) that applies to the trust for the particular taxation year

exceeds

(ii) the amount claimed by the beneficiary, which amount may not be greater than the beneficiary’s exempt capital gains balance for the year in respect of the trust; and

(c) no amount may be claimed under subsection 39.1(3) by the beneficiary in respect of the designated amount.

(24) Subsection (1) applies to the 1998 and subsequent taxation years except that, in connection with transfers of property that occur before December 24, 1998, subsection 104(1) of the Act, as enacted by subsection (1), shall be read as follows:

104. (1) In this Act, a reference to a trust or estate (in this subdivision referred to as a “trust”) shall, unless the context otherwise requires, be read to include a reference to the trustee, executor, administrator, liquidator of the succession, heir or other legal representative having ownership or control of the trust property.

(25) Subsection (2) applies

(a) to days after December 23, 1998 that are determined in respect of a trust under subsection 104(4) of the Act, as enacted by this section; and

(b) for the purpose of determining the cost amount to a trust after December 23, 1998 of property, to days after 1992 that are determined in respect of the trust under subsection 104(4) of the Act, as enacted by this section.

(26) Subsections (3), (6) and (17) to (19) apply to the 2000 and subsequent taxation years except that, with regard to a trust created by a taxpayer at a particular time in 2000 for the benefit of another individual,

(a) subparagraph 104(4)(a)(iii) of the Act, as enacted by subsection (3), shall be read without reference to the words “or common-law partner” and “or common-law partner’s”; and

(b) subparagraph 104(4)(a)(iv) of the Act, as enacted by subsection (3), shall be read without reference to clause (C),

unless, because of an election made under section 144 of the Modernization of Benefits and Obligations Act, sections 130 to 142 of that Act applied at the particular time to the taxpayer and the other individual.

(27) Paragraphs 104(4)(a.2) and (a.3) of the Act, as enacted by subsection (4), apply to days after December 17, 1999 that are determined in respect of the trust under subsection 104(4) of the Act, as enacted by this section.

(28) Paragraph 104(4)(a.4) of the Act, as enacted by subsection (4), and subsection (5) apply to the 2000 and subsequent taxation years, and, where a trust elects in writing and files the election with the Minister of National Revenue on or before March 31, 2001 (or at any later time that is acceptable to the Minister), both of those provisions apply after December 23, 1998.

(29) Subsections (7) and (8) apply to days after December 23, 1998 that are determined under subsection 104(4) of the Act, as enacted by this section, except that in applying paragraph 104(5.2)(a) of the Act, as enacted by subsection (8), to days that are in taxation years that begin before 2001 and that are determined under subsection 104(4) of the Act, that paragraph shall be read without the references to paragraph 59(3.2)(c.1) of the Act and the definition “cumulative foreign resource expense” in subsection 66.21(1) of the Act.

(30) Subsection (9) applies to taxation years that begin after 2000.

(31) Subsections (10) and (11) apply to transfers made after December 23, 1998.

(32) Subsection (12) applies to transfers made after February 11, 1991 except that, for transfers made before December 24, 1998, the portion of subsection 104(5.8) of the Act before paragraph (a), as enacted by subsection (12), shall be read as follows:

(5.8) Where capital property (other than excluded property), land included in inventory, Canadian resource property or foreign resource property is transferred at a particular time by a trust (in this subsection referred to as the “transferor trust”) to another trust (in this subsection referred to as the “transferee trust”) in circumstances in which paragraph (e) of the definition “disposition” in section 54 or subsection 107(2) applies and the transferee trust is not described in paragraph (g) of the definition “trust” in subsection 108(1),

(33) Subsection (13) applies to transfers made after December 17, 1999.

(34) Subsections (14) and (15) apply to transfers made after 1999.

(35) Subsection (16) applies to the 1998 and subsequent taxation years.

(36) Subsection (20) applies to the 2000 and subsequent taxation years.

(37) Subsection (21) applies to taxation years that end after 2000.

(38) Subsection (22) applies to taxation years, of trusts, that begin after February 22, 1994.

(39) Subsection (23) applies to taxation years that end after February 27, 2000.

79. (1) Subsection 106(1.1) of the Act is replaced by the following:

Marginal note:Cost of income interest in a trust

(1.1) The cost to a taxpayer of an income interest of the taxpayer in a trust is deemed to be nil unless

(a) any part of the interest was acquired by the taxpayer from a person who was the beneficiary in respect of the interest immediately before that acquisition; or

(b) the cost of any part of the interest would otherwise be determined not to be nil under paragraph 128.1(1)(c) or (4)(c).

(2) Paragraph 106(2)(a) of the Act is replaced by the following:

(a) except where subsection (3) applies to the disposition, there shall be included in computing the taxpayer’s income for the year the amount, if any, by which

(i) the proceeds of disposition

exceed

(ii) where that interest includes a right to enforce payment of an amount by the trust, the amount in respect of that right that has been included in computing the taxpayer’s income for a taxation year because of subsection 104(13);

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

80. (1) The portion of paragraph 107(1)(a) of the Act before subparagraph (i) is replaced by the following:

(a) where the trust is a personal trust or a prescribed trust, for the purpose of computing the taxpayer’s capital gain, if any, from the disposition, the adjusted cost base to the taxpayer of the interest or the part of the interest, as the case may be, immediately before the disposition is, unless any part of the interest has ever been acquired for consideration and, at the time of the disposition, the trust is non-resident, deemed to be the greater of

(2) Paragraph 107(1)(b) of the Act is repealed.

(3) The portion of subsection 107(1) of the Act after paragraph (d) is repealed.

(4) Subsection 107(1.1) of the Act is replaced by the following:

Marginal note:Cost of capital interest in a trust

(1.1) The cost to a taxpayer of a capital interest of the taxpayer in a personal trust or a prescribed trust is deemed to be,

(a) where the taxpayer elected under subsection 110.6(19) in respect of the interest and the trust does not elect under that subsection in respect of any property of the trust, the taxpayer’s cost of the interest determined under paragraph 110.6(19)(a); and

(b) in any other case, nil, unless

(i) any part of the interest was acquired by the taxpayer from a person who was the beneficiary in respect of the interest immediately before that acquisition, or

(ii) the cost of any part of the interest would otherwise be determined not to be nil under section 48 as it read in its application before 1993 or under paragraph 111(4)(e) or 128.1(1)(c) or (4)(c).

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

Marginal note:Distribution by personal trust

(2) Subject to subsection (2.001), where at any time a property of a personal trust or a prescribed trust is distributed by the trust to a taxpayer who was a beneficiary under the trust in satisfaction of all or any part of the taxpayer’s capital interest in the trust,

(6) The portion of subsection 107(2) of the Act before paragraph (a), as enacted by subsection (5), is replaced by the following:

Marginal note:Distribution by personal trust

(2) Subject to subsections (2.001), (2.002) and (4) to (5), where at any time a property of a personal trust or a prescribed trust is distributed by the trust to a taxpayer who was a beneficiary under the trust and there is a resulting disposition of all or any part of the taxpayer’s capital interest in the trust,

(7) Paragraphs 107(2)(b) and (c) of the Act are replaced by the following:

(b) subject to subsection (2.2), the taxpayer is deemed to have acquired the property at a cost equal to the total of its cost amount to the trust immediately before that time and the specified percentage of the amount, if any, by which

(i) the adjusted cost base to the taxpayer of the capital interest or part of it, as the case may be, immediately before that time (determined without reference to paragraph (1)(a))

exceeds

(ii) the cost amount to the taxpayer of the capital interest or part of it, as the case may be, immediately before that time;

(b.1) for the purpose of paragraph (b), the specified percentage is,

(i) where the property is capital property (other than depreciable property), 100%,

(ii) where the property is eligible capital property in respect of a business of the trust, 100%, and

(iii) in any other case, 75%;

(c) the taxpayer is deemed to have disposed of all or part, as the case may be, of the capital interest for proceeds equal to the amount, if any, by which

(i) the cost at which the taxpayer would be deemed by paragraph (b) to have acquired the property if the specified percentage referred to in that paragraph were 100%

exceeds

(ii) the total of all amounts each of which is an eligible offset at that time of the taxpayer in respect of the capital interest or the part of it;

(8) Subsection 107(2) of the Act is amended by striking out the word “and” at the end of paragraph (d) and by adding the following after paragraph (d):

(d.1) the property is deemed to be taxable Canadian property of the taxpayer where

(i) the taxpayer is non-resident at that time,

(ii) that time is before October 2, 1996, and

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

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

(ii) for the purpose of determining after that time the amount required by paragraph 14(1)(b) to be included in computing the taxpayer’s income in respect of any subsequent disposition of property of the business, there shall be added to the value otherwise determined for Q in the definition “cumulative eligible capital” in subsection 14(5) the amount determined by the formula

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

Marginal note:No rollover on election by a trust

(2.001) Where a trust makes a distribution of a property to a beneficiary of the trust in full or partial satisfaction of the beneficiary’s capital interest in the trust and so elects in prescribed form filed with the Minister with the trust’s return of income for its taxation year in which the distribution occurred, subsection (2) does not apply to the distribution if

(a) the trust is resident in Canada at the time of the distribution;

(b) the property is taxable Canadian property; or

(c) the property is capital property used in, eligible capital property in respect of, or property described in the inventory of, a business carried on by the trust through a permanent establishment (as defined by regulation) in Canada immediately before the time of the distribution.

Marginal note:No rollover on election by a beneficiary

(2.002) Where a non-resident trust makes a distribution of a property (other than a property described in paragraph (2.001)(b) or (c)) to a beneficiary of the trust in full or partial satisfaction of the beneficiary’s capital interest in the trust and the beneficiary makes an election under this subsection in prescribed form filed with the Minister with the beneficiary’s return of income for the beneficiary’s taxation year in which the distribution occurred,

(a) subsection (2) does not apply to the distribution; and

(b) for the purpose of subparagraph (1)(a)(ii), the cost amount of the interest to the beneficiary is deemed to be nil.

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

Marginal note:Distribution of principal residence

(2.01) Where property that would, if a personal trust had designated the property under paragraph (c.1) of the definition “principal residence” in section 54, be a principal residence (within the meaning of that definition) of the trust for a taxation year, is at any time (in this subsection referred to as “that time”) distributed by the trust to a taxpayer in circumstances in which subsection (2) applies and the trust so elects in its return of income for the taxation year that includes that time,

(12) Subsection 107(2.1) of the Act is replaced by the following:

Marginal note:Other distributions

(2.1) Where at any time a property of a trust is distributed by the trust to a beneficiary under the trust, there would, if this Act were read without reference to paragraphs (h) and (i) of the definition “disposition” in subsection 248(1), be a resulting disposition of all or any part of the beneficiary’s capital interest in the trust (which interest or part, as the case may be, is in this subsection referred to as the “former interest”) and the rules in subsection (2) and section 132.2 do not apply in respect of the distribution,

(a) the trust is deemed to have disposed of the property for proceeds equal to its fair market value at that time;

(b) the beneficiary is deemed to have acquired the property at a cost equal to the proceeds determined under paragraph (a);

(c) subject to paragraph (e), the beneficiary’s proceeds of disposition of the portion of the former interest disposed of by the beneficiary on the distribution are deemed to be equal to the amount, if any, by which

(i) the proceeds determined under paragraph (a) (other than the portion, if any, of the proceeds that is a payment to which paragraph (h) or (i) of the definition “disposition” in subsection 248(1) applies)

exceed the total of

(ii) where the property is not a Canadian resource property or foreign resource property, the amount, if any, by which

(A) the fair market value of the property at that time

exceeds the total of

(B) the cost amount to the trust of the property immediately before that time, and

(C) the portion, if any, of the excess that would be determined under this subparagraph if this subparagraph were read without reference to this clause that represents a payment to which paragraph (h) or (i) of the definition “disposition” in subsection 248(1) applies, and

(iii) all amounts each of which is an eligible offset at that time of the taxpayer in respect of the former interest;

(d) notwithstanding paragraphs (a) to (c), where the trust is non-resident at that time, the property is not described in paragraph (2.001)(b) or (c) and, if this Act were read without reference to this paragraph, there would be no income, loss, taxable capital gain or allowable capital loss of a taxpayer in respect of the property because of the application of subsection 75(2) to the disposition at that time of the property,

(i) the trust is deemed to have disposed of the property for proceeds equal to the cost amount of the property,

(ii) the beneficiary is deemed to have acquired the property at a cost equal to the fair market value of the property, and

(iii) the beneficiary’s proceeds of disposition of the portion of the former interest disposed of by the beneficiary on the distribution are deemed to be equal to the amount, if any, by which

(A) the fair market value of the property

exceeds the total of

(B) the portion, if any, of the amount of the distribution that is a payment to which paragraph (h) or (i) of the definition “disposition” in subsection 248(1) applies, and

(C) all amounts each of which is an eligible offset at that time of the taxpayer in respect of the former interest; and

(e) where the trust is a mutual fund trust, the distribution occurs in a taxation year of the trust before its 2003 taxation year, the trust has elected under subsection (2.11) in respect of the year and the trust so elects in respect of the distribution in prescribed form filed with the trust’s return of income for the year,

(i) this subsection shall be read without reference to paragraph (c), and

(ii) the beneficiary’s proceeds of disposition of the portion of the former interest disposed of by the beneficiary on the distribution are deemed to be equal to the amount determined under paragraph (a).

Marginal note:Gains not distributed to beneficiaries

(2.11) Where a trust makes one or more distributions of property in a taxation year in circumstances in which subsection (2.1) applies (or, in the case of property distributed after October 1, 1996 and before 2000, in circumstances in which subsection (5) applied)

(a) where the trust is resident in Canada at the time of each of those distributions and has so elected in prescribed form filed with the trust’s return for the year or a preceding taxation year, the income of the trust for the year (determined without reference to subsection 104(6)) shall, for the purposes of subsections 104(6) and (13), be computed without regard to all of those distributions to non-resident persons (including a partnership other than a Canadian partnership); and

(b) where the trust is resident in Canada at the time of each of those distributions and has so elected in prescribed form filed with the trust’s return for the year or a preceding taxation year, the income of the trust for the year (determined without reference to subsection 104(6)) shall, for the purposes of subsections 104(6) and (13), be computed without regard to all of those distributions.

Marginal note:Election — subsection (2.11)

(2.12) An election made under subsection (2.11) by a mutual fund trust is deemed, for the trust’s 2003 and subsequent taxation years, not to have been made if

(a) the election is made after December 20, 2000 and applies to any taxation year that ends before 2003; and

(b) the proceeds of disposition of a beneficiary’s interest in the trust have been determined under paragraph (2.1)(e).

(13) Subparagraph 107(2.2)(a)(ii) of the Act is amended by replacing the reference to the expression “4/3 of” with a reference to the word “twice”.

(14) Subsection 107(3) of the Act is repealed.

(15) Subsection 107(4) of the Act is replaced by the following:

Marginal note:Trusts in favour of spouse, common-law partner or self

(4) Subsection (2.1) applies (and subsection (2) does not apply) at any time to property distributed to a beneficiary by a trust described in paragraph 104(4)(a) where

(a) the beneficiary is not

(i) in the case of a post-1971 spousal or common-law partner trust, the spouse or common-law partner referred to in paragraph 104(4)(a),

(ii) in the case of an alter ego trust, the taxpayer referred to in paragraph 104(4)(a), and

(iii) in the case of a joint spousal or common-law partner trust, the taxpayer, spouse or common-law partner referred to in paragraph 104(4)(a); and

(b) a taxpayer, spouse or common-law partner referred to in subparagraph (a)(i), (ii) or (iii), as the case may be, is alive on the day of the distribution.

(16) The portion of subsection 107(4.1) of the Act after paragraph (c) is replaced by the following:

subsection (2.1) applies (and subsection (2) does not apply) in respect of the distribution.

(17) Subsection 107(4.1) of the Act, as enacted by subsection (16), is replaced by the following:

Marginal note:Where subsection 75(2) applicable to trust

(4.1) Subsection (2.1) applies (and subsection (2) does not apply) in respect of a distribution of any property of a particular personal trust or prescribed trust by the particular trust to a taxpayer who was a beneficiary under the particular trust where

(a) the distribution was in satisfaction of all or any part of the taxpayer’s capital interest in the particular trust;

(b) subsection 75(2) was applicable at a particular time in respect of any property of

(i) the particular trust, or

(ii) a trust the property of which included a property that, through one or more dispositions to which subsection 107.4(3) applied, became a property of the particular trust, and the property was not, at any time after the particular time and before the distribution, the subject of a disposition for proceeds of disposition equal to the fair market value of the property at the time of the disposition;

(c) the taxpayer was neither

(i) the person (other than a trust described in subparagraph (b)(ii)) from whom the particular trust directly or indirectly received the property, or property for which the property was substituted, nor

(ii) an individual in respect of whom subsection 73(1) would be applicable on the transfer of capital property from the person described in subparagraph (i); and

(d) the person described in subparagraph (c)(i) was in existence at the time the property was distributed.

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

Marginal note:Distribution to non-resident

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

Marginal note:Instalment interest

(5.1) Where, solely because of the application of subsection (5), paragraphs (2)(a) to (c) do not apply to a distribution in a taxation year of taxable Canadian property by a trust, in applying sections 155, 156 and 156.1 and subsections 161(2), (4) and (4.01) and any regulations made for the purpose of those provisions, the trust’s total taxes payable under this Part and Part I.1 for the year are deemed to be the lesser of

(a) the trust’s total taxes payable under this Part and Part I.1 for the year, determined before taking into consideration the specified future tax consequences for the year, and

(b) the amount that would be determined under paragraph (a) if subsection (5) did not apply to each distribution in the year of taxable Canadian property to which the rules in subsection (2) do not apply solely because of the application of subsection (5).

(19) Subsections (1) to (4) apply to the 2000 and subsequent taxation years except that, in respect of transfers in 2000 or 2001, 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 before 2002.

(20) Subsection (5) applies to distributions made after October 1, 1996.

(21) Subsections (6) and (7), subsection 107(2.002) of the Act, as enacted by subsection (10), and subsections (11) and (14) to (16) apply to distributions made after 1999 except that, for distributions made to a beneficiary before the particular day on which this Act receives royal assent, an election under subsection 107(2.002) of the Act, as enacted by subsection (10), is deemed to have been made in a timely manner if it is made on or before the beneficiary’s filing-due date for the taxation year that includes the particular day.

(22) Subsection (8) applies in determining after October 1, 1996 whether property is taxable Canadian property.

(23) Subsections (9) and (13) apply to taxation years that end after February 27, 2000 except that, for a beneficiary’s taxation year that includes February 28, 2000 or October 17, 2000, or began after February 28, 2000 and ended before October 17, 2000, the reference to the word “twice” in subparagraph 107(2.2)(a)(ii) of the Act, as enacted by subsection (13), shall be read as a reference to the expression “the fraction that is the reciprocal of the fraction in paragraph 38(a), as enacted by subsection 22(1) of the Income Tax Amendments Act, 2000, that applies to the beneficiary for the year, multiplied by”.

(24) Subsection 107(2.001) of the Act, as enacted by subsection (10), applies to distributions made after October 1, 1996 except that, for distributions made from a trust before the particular day on which this Act receives royal assent, an election under that subsection 107(2.001) is deemed to have been made in a timely manner if it is made on or before the trust’s filing-due date for the taxation year that includes the particular day.

(25) Subsection 107(2.1) of the Act, as enacted by subsection (12), applies to distributions made after 1999, except that

(a) it does not apply to distributions made before March 2000 in satisfaction of rights described in subsection 52(6) of the Act that were acquired before 2000; and

(b) for distributions made from a trust before the particular day on which this Act receives royal assent, an election under that subsection 107(2.1) is deemed to have been made in a timely manner if it is made on or before the trust’s filing-due date for the taxation year that includes the particular day.

(26) Subsection 107(2.11) of the Act, as enacted by subsection (12), applies to distributions made after October 1, 1996 except that, for distributions made from a trust before the particular day on which this Act receives royal assent, an election under that subsection 107(2.11) is deemed to have been made in a timely manner if it is made on or before the trust’s filing-due date for the taxation year that includes the particular day.

(27) Subsection (17) applies to distributions made on or after March 16, 2001.

(28) Subsection (18) applies to distributions made after October 1, 1996 except that, for distributions made after October 1, 1996 and before 2000, subsection 107(5) of the Act, as enacted by subsection (18), shall be read as follows:

(5) Where subsection (2) applies to a distribution at any time by a trust resident in Canada of a property (other than a share of the capital stock of a non-resident-owned investment corporation or property described in any of subparagraphs 128.1(4)(b)(i) to (iii)) to a non-resident taxpayer (including a partnership other than a Canadian partnership) who is a beneficiary under the trust in satisfaction of the taxpayer’s capital interest in the trust, notwithstanding paragraphs (2)(a) to (c),

(a) the trust is deemed to have disposed of the property for proceeds equal to its fair market value at that time;

(b) the taxpayer is deemed to have acquired the property at a cost equal to that fair market value; and

(c) the taxpayer is deemed to have disposed of all or part, as the case may be, of the taxpayer’s capital interest in the trust, for proceeds of disposition equal to the adjusted cost base to the taxpayer of that interest or part of the interest, as the case may be, immediately before that time.

81. (1) The portion of section 107.1 of the Act before subparagraph (a)(i) is replaced by the following:

Marginal note:Distribution by employee trust, employee benefit plan or similar trust

107.1 Where at any time any property of an employee trust, a trust governed by an employee benefit plan or a trust described in paragraph (a.1) of the definition “trust” in subsection 108(1) has been distributed by the trust to a taxpayer who was a beneficiary under the trust in satisfaction of all or any part of the taxpayer’s interest in the trust, the following rules apply:

(a) in the case of an employee trust or a trust described in paragraph (a.1) of the definition “trust” in subsection 108(1),

(2) Subsection (1) applies to the 1999 and subsequent taxation years.

82. (1) The Act is amended by adding the following after section 107.3:

Marginal note:Qualifying disposition

107.4 (1) For the purpose of this section, a “qualifying disposition” of a property means a disposition of the property by a person or partnership (in this subsection referred to as the “contributor”) as a result of a transfer of the property to a particular trust where

(a) the disposition does not result in a change in the beneficial ownership of the property;

(b) the proceeds of disposition would, if this Act were read without reference to this section and sections 69 and 73, not be determined under any provision of this Act;

(c) if the particular trust is non-resident, the disposition is not

(i) by a person resident in Canada or by a partnership (other than a partnership each member of which is non-resident), or

(ii) a transfer of taxable Canadian property from a non-resident person who was resident in Canada in any of the ten calendar years preceding the transfer;

(d) the contributor is not a partnership, if the disposition is part of a series of transactions or events that begin after December 17, 1999 that includes the cessation of the partnership’s existence and a subsequent distribution from a personal trust to a former member of the partnership in circumstances to which subsection 107(2) applies;

(e) unless the contributor is a trust, there is immediately after the disposition no absolute or contingent right of a person or partnership (other than the contributor or, where the property was co-owned, each of the joint contributors) as a beneficiary (determined with reference to subsection 104(1.1)) under the particular trust;

(f) the contributor is not an individual (other than a trust described in any of paragraphs (a) to (e.1) of the definition “trust” in subsection 108(1)), if the particular trust is described in any of paragraphs (a) to (e.1) of the definition “trust” in subsection 108(1);

(g) the disposition is not part of a series of transactions or events

(i) that begins after December 17, 1999 and that includes the subsequent acquisition, for consideration given to a personal trust, of a capital interest or an income interest in the trust,

(ii) that begins after December 17, 1999 and that includes the disposition of all or part of a capital interest or an income interest in a personal trust, other than a disposition solely as a consequence of a distribution from a trust to a person or partnership in satisfaction of all or part of that interest, or

(iii) that begins after June 5, 2000 and that includes the transfer to the particular trust of particular property as consideration for the acquisition of a capital interest in the particular trust, if the particular property can reasonably be considered to have been received by the particular trust in order to fund a distribution (other than a distribution that is proceeds of disposition of a capital interest in the particular trust);

(h) the disposition is not, and is not part of, a transaction

(i) that occurs after December 17, 1999, and

(ii) that includes the giving to the contributor, for the disposition, of any consideration (other than consideration that is an interest of the contributor as a beneficiary under the particular trust or that is the assumption by the particular trust of debt for which the property can, at the time of the disposition, reasonably be considered to be security);

(i) subsection 73(1) does not apply to the disposition and would not apply to the disposition if

(i) no election had been made under that subsection, and

(ii) section 73 were read without reference to subsection 73(1.02); and

(j) if the contributor is an amateur athlete trust, a cemetery care trust, an employee trust, an inter vivos trust deemed by subsection 143(1) to exist in respect of a congregation that is a constituent part of a religious organization, a related segregated fund trust (as defined by section 138.1), a trust described in paragraph 149(1)(o.4) or a trust governed by an eligible funeral arrangement, an employees profit sharing plan, a registered education savings plan or a registered supplementary unemployment benefit plan, the particular trust is the same type of trust.

Marginal note:Application of paragraph (1)(a)

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

(a) except where paragraph (b) applies, where a trust (in this paragraph and subsection (2.1) referred to as the “transferor trust”), in a period that does not exceed one day, disposes of one or more properties in the period to one or more other trusts, there is deemed to be no resulting change in the beneficial ownership of those properties if

(i) the transferor trust receives no consideration for the disposition, and

(ii) as a consequence of the disposition, the value of each beneficiary’s beneficial ownership at the beginning of the period under the transferor trust in each particular property of the transferor trust (or group of two or more properties of the transferor trust that are identical to each other) is the same as the value of the beneficiary’s beneficial ownership at the end of the period under the transferor trust and the other trust or trusts in each particular property (or in property that was immediately before the disposition included in the group of identical properties referred to above); and

(b) where a trust (in this paragraph referred to as the “transferor”) governed by a registered retirement savings plan or by a registered retirement income fund transfers a property to a trust (in this paragraph referred to as the “transferee”) governed by a registered retirement savings plan or by a registered retirement income fund, the transfer is deemed not to result in a change in the beneficial ownership of the property if the annuitant of the plan or fund that governs the transferor is also the annuitant of the plan or fund that governs the transferee.

Marginal note:Fractional interests

(2.1) For the purpose of applying paragraph (2)(a) in respect of a transfer by a transferor trust of property that includes a share and money, the other trust or trusts referred to in that paragraph may receive, in lieu of a transfer of a fractional interest in a share that would otherwise be required, a disproportionate amount of money or interest in the share (the value of which does not exceed the lesser of $200 and the fair market value of the fractional interest).

Marginal note:Tax consequences of qualifying dispositions

(3) Where at a particular time there is a qualifying disposition of a property by a person or partnership (in this subsection referred to as the “transferor”) to a trust (in this subsection referred to as the “transferee trust”),

(a) the transferor’s proceeds of disposition of the property are deemed to be

(i) where the transferor so elects in writing and files the election with the Minister on or before the transferor’s filing-due date for its taxation year that includes the particular time, or at any later time that is acceptable to the Minister, the amount specified in the election that is not less than the cost amount to the transferor of the property immediately before the particular time and not more than the fair market value of the property at the particular time, and

(ii) in any other case, the cost amount to the transferor of the property immediately before the particular time;

(b) except as otherwise provided under paragraph (c), the transferee trust’s cost of the property is deemed to be the amount, if any, by which

(i) the proceeds determined under paragraph (a) in respect of the qualifying disposition

exceed

(ii) the amount by which the transferor’s loss otherwise determined from the qualifying disposition would be reduced because of subsection 100(4), paragraph 107(1)(c) or (d) or any of subsections 112(3) to (4.2), if the proceeds determined under paragraph (a) were equal to the fair market value of the property at the particular time;

(c) notwithstanding subsection 206(4), for the purposes of Part XI and regulations made for the purposes of that Part, the transferee trust’s cost of the property is deemed to be

(i) the cost amount to the transferor immediately before the particular time where

(A) the particular time is before 2000,

(B) the transferor is a trust governed by a registered retirement savings plan or a registered retirement income fund,

(C) the transferee trust is governed by a registered retirement savings plan or a registered retirement income fund,

(D) the transferee trust files a written election with the Minister on or before the later of March 31, 2001 and its filing-due date for its taxation year that includes the particular time (or at such later date that is acceptable to the Minister) that this subparagraph apply, and

(E) it can reasonably be considered that the election was not made for the purpose of avoiding tax under Part XI,

(ii) the fair market value of the property at the particular time where

(A) subparagraph (iii) does not apply,

(B) the transferee trust files a written election with the Minister on or before the later of March 31, 2001 and its filing-due date for its taxation year that includes the particular time (or at such later date that is acceptable to the Minister) that this subparagraph apply, and

(C) it can reasonably be considered that the election was not made for the purpose of avoiding tax under Part XI,

(iii) the fair market value of the property at the particular time where

(A) subparagraph (i) does not apply to the qualifying disposition,

(B) the particular time is before 2000,

(C) the transferor is a trust governed by a registered retirement savings plan or a registered retirement income fund, and

(D) the transferee trust is governed by a registered retirement savings plan or a registered retirement income fund, and

(iv) the cost amount to the transferor of the property immediately before the particular time, in any other case;

(d) if the property was depreciable property of a prescribed class of the transferor and its capital cost to the transferor exceeds the cost at which the transferee trust is deemed by this subsection to have acquired the property, for the purposes of sections 13 and 20 and any regulations made for the purpose of paragraph 20(1)(a),

(i) the capital cost of the property to the transferee trust is deemed to be the amount that was the capital cost of the property to the transferor, and

(ii) the excess is deemed to have been allowed to the transferee trust in respect of the property under regulations made for the purpose of paragraph 20(1)(a) in computing income for taxation years that ended before the particular time;

(e) if the property was eligible capital property of the transferor in respect of a business of the transferor,

(i) where the eligible capital expenditure of the transferor in respect of the property exceeds the cost at which the transferee trust is deemed by this subsection to have acquired the property, for the purposes of sections 14, 20 and 24,

(A) the eligible capital expenditure of the transferee trust in respect of the property is deemed to be the amount that was the eligible capital expenditure of the transferor in respect of the property, and

(B) 3/4 of the excess is deemed to have been allowed under paragraph 20(1)(b) to the transferee trust in respect of the property in computing income for taxation years that ended

(I) before the particular time, and

(II) after the adjustment time of the transferee trust in respect of the business, and

(ii) for the purpose of determining after the particular time the amount required by paragraph 14(1)(b) to be included in computing the transferee trust’s income in respect of any subsequent disposition of the property of the business, there shall be added to the value otherwise determined for Q in the definition “cumulative eligible capital” in subsection 14(5) the amount determined by the formula

A × (B / C)

where


is the amount, if any, determined for Q in that definition in respect of the business of the transferor immediately before the particular time,


is the fair market value of the property immediately before the particular time, and


is the fair market value immediately before the particular time of all eligible capital property of the transferor in respect of the business;

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

(g) where the transferor is a related segregated fund trust (in this paragraph having the meaning assigned by section 138.1),

(i) paragraph 138.1(1)(i) does not apply in respect of a disposition of an interest in the transferor that occurs in connection with the qualifying disposition, and

(ii) in computing the amount determined under paragraph 138.1(1)(i) in respect of a subsequent disposition of an interest in the transferee trust where the interest is deemed to exist in connection with a particular life insurance policy, the acquisition fee (as defined by subsection 138.1(6)) in respect of the particular policy shall be determined as if each amount determined under any of paragraphs 138.1(6)(a) to (d) in respect of the policyholder’s interest in the transferor had been determined in respect of the policyholder’s interest in the transferee trust;

(h) if the transferor is a trust to which property had been transferred by an individual (other than a trust),

(i) where subsection 73(1) applied in respect of the property so transferred and it is reasonable to consider that the property was so transferred in anticipation of the individual ceasing to be resident in Canada, for the purposes of paragraph 104(4)(a.3) and the application of this paragraph to a disposition by the transferee trust after the particular time, the transferee trust is deemed after the particular time to be a trust to which the individual had transferred property in anticipation of the individual ceasing to reside in Canada and in circumstances to which subsection 73(1) applied, and

(ii) for the purposes of paragraph (j) of the definition “excluded right or interest” in subsection 128.1(10) and the application of this paragraph to a disposition by the transferee trust after the particular time, where the property so transferred was transferred in circumstances to which this subsection would apply if subsection (1) were read without reference to paragraphs (1)(h) and (i), the transferee trust is deemed after the particular time to be a trust an interest in which was acquired by the individual as a consequence of a qualifying disposition;

(i) if the transferor is a trust (other than a personal trust or a trust prescribed for the purposes of subsection 107(2)), the transferee trust is deemed to be neither a personal trust nor a trust prescribed for the purposes of subsection 107(2);

(j) if the transferor is a trust and a taxpayer disposes of all or part of a capital interest in the transferor because of the qualifying disposition and, as a consequence, acquires a capital interest or part of it in the transferee trust

(i) the taxpayer is deemed to dispose of the capital interest or part of it in the transferor for proceeds equal to the cost amount to the taxpayer of that interest or part of it immediately before the particular time, and

(ii) the taxpayer is deemed to acquire the capital interest or part of it in the transferee trust at a cost equal to the amount, if any, by which

(A) that cost amount

exceeds

(B) the amount by which the taxpayer’s loss otherwise determined from the disposition referred to in subparagraph (i) would be reduced because of paragraph 107(1)(c) or (d) if the proceeds under that subparagraph were equal to the fair market value of the capital interest or part of it in the transferor immediately before the particular time;

(k) where the transferor is a trust, a taxpayer’s beneficial ownership in the property ceases to be derived from the taxpayer’s capital interest in the transferor because of the qualifying disposition and no part of the taxpayer’s capital interest in the transferor was disposed of because of the qualifying disposition, there shall, immediately after the particular time, be added to the cost otherwise determined of the taxpayer’s capital interest in the transferee trust, the amount determined by the formula

A × [(B – C) / B] – D

where


is the cost amount to the taxpayer of the taxpayer’s capital interest in the transferor immediately before the particular time,


is the fair market value immediately before the particular time of the taxpayer’s capital interest in the transferor,


is the fair market value at the particular time of the taxpayer’s capital interest in the transferor (determined as if the only property disposed of at the particular time were the particular property), and


is the lesser of

(i) the amount, if any, by which the cost amount to the taxpayer of the taxpayer’s capital interest in the transferor immediately before the particular time exceeds the fair market value of the taxpayer’s capital interest in the transferor immediately before the particular time, and

(ii) the maximum amount by which the taxpayer’s loss from a disposition of a capital interest otherwise determined could have been reduced because of paragraph 107(1)(c) or (d) if the taxpayer’s capital interest in the transferor had been disposed of immediately before the particular time;

(l) where paragraph (k) applies to the qualifying disposition in respect of a taxpayer, the amount that would be determined under that paragraph in respect of the qualifying disposition if the amount determined for D in that paragraph were nil shall, immediately after the particular time, be deducted in computing the cost otherwise determined of the taxpayer’s capital interest in the transferor;

(m) where paragraphs (j) and (k) do not apply in respect of the qualifying disposition, the transferor is deemed to acquire the capital interest or part of it in the transferee trust that is acquired as a consequence of the qualifying disposition

(i) where the transferee trust is a personal trust, at a cost equal to nil, and

(ii) in any other case, at a cost equal to the excess determined under paragraph (b) in respect of the qualifying disposition; and

(n) if the transferor is a trust and a taxpayer disposes of all or part of an income interest in the transferor because of the qualifying disposition and, as a consequence, acquires an income interest or a part of an income interest in the transferee trust, for the purpose of subsection 106(2), the taxpayer is deemed not to dispose of any part of the income interest in the transferor at the particular time.

Marginal note:Fair market value of vested interest in trust

(4) Where

(a) a particular capital interest in a trust is held by a beneficiary at any time,

(b) the particular interest is vested indefeasibly at that time,

(c) the trust is not described in any of paragraphs (a) to (e.1) of the definition “trust” in subsection 108(1), and

(d) interests under the trust are not ordinarily disposed of for consideration that reflects the fair market value of the net assets of the trust,

the fair market value of the particular interest at that time is deemed to be not less than the amount determined by the formula

(A – B) × (C / D)

where


is the total fair market value at that time of all properties of the trust,


is the total of all amounts each of which is the amount of a debt owing by the trust at that time or the amount of any other obligation of the trust to pay any amount that is outstanding at that time,


is the fair market value at that time of the particular interest (determined without reference to this subsection), and


is the total fair market value at that time of all interests as beneficiaries under the trust (determined without reference to this subsection).

(2) Subsections 107.4(1) and (3) of the Act, as enacted by subsection (1), apply

(a) to dispositions that occur after December 23, 1998 except that, in its application to dispositions that occurred in taxation years that ended before February 28, 2000, the reference to “paragraph 14(1)(b)” in subparagraph 107.4(3)(e)(ii) of the Act, as enacted by subsection (1), shall be read as a reference to “subparagraph 14(1)(a)(v) or paragraph 14(1)(b)”; and

(b) in respect of the 1993 and subsequent taxation years, to transfers of capital property that occurred before December 24, 1998 except that, in its application to transfers before December 24, 1998,

(i) subsection 107.4(1) of the Act, as enacted by subsection (1), shall be read as follows:

107.4 (1) For the purpose of this section, a “qualifying disposition” of a property means a transfer of the property to a particular trust that was not a disposition of the property for the purpose of subdivision c because of paragraph (e) of the definition “disposition” in section 54, except where

(a) if the transfer is from another trust to the particular trust,

(i) each trust can reasonably be considered to act as agent for the same beneficiary or beneficiaries in respect of the property transferred, or

(ii) the transferee trust can reasonably be considered to act as agent for the transferor trust in respect of the property transferred; and

(b) in any other case, it is reasonable to consider that the particular trust acts as agent in respect of the property transferred.

(ii) the portion of subsection 107.4(3) of the Act before paragraph (a), as enacted by subsection (1), shall be read as follows:

(3) Where at a particular time there is a qualifying disposition of a property by a person or partnership (in this subsection referred to as the “transferor”) to a trust (in this subsection referred to as the “transferee trust”), except for the purposes of Part XI and regulations made for the purposes of that Part

(iii) subsection 107.4(3) of the Act, as enacted by subsection (1), shall be read without reference to paragraphs 107.4(3)(a), (c), (g) and (h) of the Act, as enacted by subsection (1),

(iv) paragraph 107.4(3)(b) of the Act, as enacted by subsection (1), shall be read as follows:

(b) the transferee trust’s cost of the property is deemed to be the cost amount to the transferor of the property immediately before the particular time;

(v) subsection 107.4(3) of the Act, as enacted by subsection (1), shall be read as if each amount determined under clause 107.4(3)(j)(ii)(B) of the Act and the description of D in paragraph 107.4(3)(k) of the Act, as enacted by subsection (1), were nil, and

(vi) subparagraph 107.4(3)(m)(ii) of the Act, as enacted by subsection (1), shall be read as follows:

(ii) in any other case, at a cost equal to the amount determined under paragraph (b) in respect of the qualifying disposition; and

(3) Subsections 107.4(2), (2.1) and (4) of the Act, as enacted by subsection (1), apply to dispositions that occur after December 23, 1998.

83. (1) The definition “accumulating income” in subsection 108(1) of the Act is replaced by the following:

“accumulating income”

« revenu accumulé »

“accumulating income” of a trust for a taxation year means the amount that would be the income of the trust for the year if that amount were computed

(a) without reference to paragraphs 104(4)(a) and (a.1) and subsections 104(5.1), (5.2) and (12) and 107(4),

(b) as if the greatest amount that the trust was entitled to claim under subsection 104(6) in computing its income for the year were so claimed, and

(c) without reference to subsection 12(10.2), except to the extent that that subsection applies to amounts paid to a trust to which paragraph 70(6.1)(b) applies and before the death of the spouse or common-law partner referred to in that paragraph;

(2) The definition “capital interest” in subsection 108(1) of the Act is replaced by the following:

“capital interest”

« participation au capital »

“capital interest” of a taxpayer in a trust means all rights of the taxpayer as a beneficiary under the trust, and after 1999 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, but does not include an income interest in the trust;

(3) 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, after 1999, 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;

(4) The portion of the definition “cost amount” in subsection 108(1) of the Act 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 the interest, as the case may be, in a trust (other than a trust that is a foreign affiliate of the taxpayer) means, except for the purposes of section 107.4 and notwithstanding subsection 248(1),

(5) The definition “cost amount” in subsection 108(1) of the Act is amended by striking out the word “and” at the end of paragraph (a) and by adding the following after paragraph (a):

(a.1) where that time is immediately before the time of the death of the taxpayer and subsection 104(4) or (5) deems the trust to dispose of property at the end of the day that includes that time, the amount that would be determined under paragraph (b) if the taxpayer had died on a day that ended immediately before that time, and

(6) The definition “trust” in subsection 108(1) of the Act is amended by adding the following after paragraph (a):

(a.1) a trust, other than a trust described in paragraph (a) or (d), 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,

(7) The portion of the definition “trust” in subsection 108(1) of the Act after paragraph (e.1) is replaced by the following:

and, in applying subsections 104(4), (5), (5.2), (12), (14) and (15) and section 106 at any time, does not include

(f) a trust that, at that time, is a unit trust, or

(g) a trust all interests in which, at that time, have vested indefeasibly, other than

(i) an alter ego trust, a joint spousal or common-law partner trust, a post-1971 spousal or common-law partner trust or a trust to which paragraph 104(4)(a.4) applies,

(ii) a trust that has elected under subsection 104(5.3),

(iii) a trust that has, in its return of income under this Part for its first taxation year that ends after 1992, elected that this paragraph not apply,

(iv) a trust that is at that time resident in Canada where the total fair market value at that time of all interests in the trust held at that time by beneficiaries under the trust who at that time are non-resident is more than 20% of the total fair market value at that time of all interests in the trust held at that time by beneficiaries under the trust,

(v) a trust under the terms of which, at that time, all or part of a person’s interest in the trust is to be terminated with reference to a period of time (including a period of time determined with reference to the person’s death), otherwise than as a consequence of terms of the trust under which an interest in the trust is to be terminated as a consequence of a distribution to the person (or the person’s estate) of property of the trust if the fair market value of the property to be distributed is required to be commensurate with the fair market value of that interest immediately before the distribution, or

(vi) a trust that, before that time and after December 17, 1999, has made a distribution to a beneficiary in respect of the beneficiary’s capital interest in the trust, if the distribution can reasonably be considered to have been financed by a liability of the trust and one of the purposes of incurring the liability was to avoid taxes otherwise payable under this Part as a consequence of the death of any individual.

(8) Subsection 108(1) of the Act is amended by adding the following in alphabetical order:

“eligible offset”

« montant de réduction admissible »

“eligible offset” at any time of a taxpayer in respect of all or part of the taxpayer’s capital interest in a trust is the portion of any debt or obligation that is assumed by the taxpayer and that can reasonably be considered to be applicable to property distributed at that time in satisfaction of the interest or part of the interest, as the case may be, if the distribution is conditional upon the assumption by the taxpayer of the portion of the debt or obligation;

“exempt property”

« bien exonéré »

“exempt property” of a taxpayer at any time means property any income or gain from the disposition of which by the taxpayer at that time would, because the taxpayer is non-resident or because of a provision contained in a tax treaty, not cause an increase in the taxpayer’s tax payable under this Part;

(9) Paragraph 108(2)(b) of the Act is replaced by the following:

(b) each of the following conditions was satisfied:

(i) throughout the taxation year that includes the particular time (in this paragraph referred to as the “current year”), the trust was resident in Canada,

(ii) throughout the period or periods (in this paragraph referred to as the “relevant periods”) that are in the current year and throughout which the conditions in paragraph (a) are not satisfied in respect of the trust, its only undertaking was

(A) the investing of its funds in property (other than real property or an interest in real property),

(B) the acquiring, holding, maintaining, improving, leasing or managing of any real property or an interest in real property, that is capital property of the trust, or

(C) any combination of the activities described in clauses (A) and (B),

(iii) throughout the relevant periods at least 80% of its property consisted of any combination of

(A) shares,

(B) any property that, under the terms or conditions of which or under an agreement, is convertible into, is exchangeable for or confers a right to acquire, shares,

(C) cash,

(D) bonds, debentures, mortgages, hypothecary claims, notes and other similar obligations,

(E) marketable securities,

(F) real property situated in Canada and interests in real property situated in Canada, and

(G) rights to and interests in any rental or royalty computed by reference to the amount or value of production from a natural accumulation of petroleum or natural gas in Canada, from an oil or gas well in Canada or from a mineral resource in Canada,

(iv) either

(A) not less than 95% of its income for the current year (computed without regard to subsections 49(2.1) and 104(6)) was derived from, or from the disposition of, investments described in subparagraph (iii), or

(B) not less than 95% of its income for each of the relevant periods (computed without regard to subsections 49(2.1) and 104(6) and as though each of those periods were a taxation year) was derived from, or from the disposition of, investments described in subparagraph (iii),

(v) throughout the relevant periods, not more than 10% of its property consisted of bonds, securities or shares in the capital stock of any one corporation or debtor other than Her Majesty in right of Canada or a province or a Canadian municipality, and

(vi) where the trust would not be a unit trust at the particular time if this paragraph were read without reference to this subparagraph and subparagraph (iii) were read without reference to clause (F), the units of the trust are listed at any time in the current year or in the following taxation year on a prescribed stock exchange in Canada, or

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

Marginal note:Income of a trust in certain provisions

(3) For the purposes of the definition “income interest” in subsection (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

(11) Subsection 108(4) of the Act is replaced by the following:

Marginal note:Trust not disqualified

(4) For the purposes of the definition “pre-1972 spousal trust” in subsection (1), subparagraphs 70(6)(b)(ii) and (6.1)(b)(ii) and paragraphs 73(1.01)(c) and 104(4)(a), where a trust was created by a taxpayer whether by the taxpayer’s will or otherwise, no person is deemed to have received or otherwise obtained or to be entitled to receive or otherwise obtain the use of any income or capital of the trust solely because of the payment, or provision for payment, as the case may be, by the trust of

(a) any estate, legacy, succession or inheritance duty payable, in consequence of the death of the taxpayer, or a spouse or common-law partner of the taxpayer who is a beneficiary under the trust, in respect of any property of, or interest in, the trust; or

(b) any income or profits tax payable by the trust in respect of any income of the trust.

(12) Subsection 108(6) of the Act is replaced by the following:

Marginal note:Variation of trusts

(6) Where at any time the terms of a trust are varied

(a) for the purposes of subsections 104(4), (5) and (5.2) and subject to paragraph (b), the trust is, at and after that time, deemed to be the same trust as, and a continuation of, the trust immediately before that time;

(b) for greater certainty, paragraph (a) does not affect the application of paragraph 104(4)(a.1); and

(c) for the purposes of paragraph 53(2)(h), subsection 107(1), paragraph (j) of the definition “excluded right or interest” in subsection 128.1(10) and the definition “personal trust” in subsection 248(1), no interest of a beneficiary under the trust before it was varied is considered to be consideration for the interest of the beneficiary in the trust as varied.

Marginal note:Interests acquired for consideration

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

(a) an interest in a trust is deemed not to be acquired for consideration solely because it was acquired in satisfaction of any right as a beneficiary under the trust to enforce payment of an amount by the trust; and

(b) where all the beneficial interests in a particular inter vivos trust acquired by way of the transfer, assignment or other disposition of property to the particular trust were acquired by

(i) one person, or

(ii) two or more persons who would be related to each other if

(A) a trust and another person were related to each other, where the other person is a beneficiary under the trust or is related to a beneficiary under the trust, and

(B) a trust and another trust were related to each other, where a beneficiary under the trust is a beneficiary under the other trust or is related to a beneficiary under the other trust,

any beneficial interest in the particular trust acquired by such a person is deemed to have been acquired for no consideration.

(13) Subsection (1) and subsection 108(6) of the Act, as enacted by subsection (12), apply to the 2000 and subsequent taxation years.

(14) Subsection (2) and the definition “eligible offset” in subsection 108(1) of the Act, as enacted by subsection (8), apply after 1999.

(15) Subsection (3) applies in respect of interests created or materially altered after January 1987 that were acquired after 10 p.m. Eastern Standard Time, February 6, 1987.

(16) Subsection (4) applies to the 1993 and subsequent taxation years.

(17) Subsection (5) applies to deaths that occur after 1999 and, where a day before the 2000 taxation year is determined under paragraph 104(4)(a.4) of the Act, as enacted by subsection 78(4), in respect of a trust, it applies to deaths that occur after December 23, 1998.

(18) Subsection (6) applies to the 1999 and subsequent taxation years.

(19) Subsections (7) and (9) apply to the 1998 and subsequent taxation years, except that

(a) subsection (7) does not apply for the purpose of applying subparagraph (g)(iv) of the definition “trust” in subsection 108(1) of the Act, as enacted by subsection (7), before December 24, 1998; and

(b) where the trust so elects in writing and files the election 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 receives royal assent (or any later day that is acceptable to that Minister), subparagraph (g)(v) of that definition, as enacted by subsection (7), as it applies before 2001, shall be read as follows:

(v) a trust any interest in which may become effective in the future, or

(20) The definition “exempt property” in subsection 108(1) of the Act, as enacted by subsection (8), applies after 1992 except that, before 1999, the words “tax treaty” in that definition shall be read as “convention or agreement with another country that has the force of law in Canada”.

(21) Subsections (10) and (11) apply to the 2000 and subsequent taxation years, except for the purpose of applying section 73 of the Act to transfers that occur before 2000.

(22) Subsection 108(7) of the Act, as enacted by subsection (12), applies after December 23, 1998.

84. (1) The portion of paragraph 110(1)(d) of the Act before subparagraph (i) is replaced by the following:

Marginal note:Employee options

(d) an amount equal to 1/2 of the amount of the benefit deemed by subsection 7(1) to have been received by the taxpayer in the year in respect of a security that a particular qualifying person has agreed after February 15, 1984 to sell or issue under an agreement, or in respect of the transfer or other disposition of rights under the agreement, if

(2) Subparagraphs 110(1)(d)(ii) and (iii) of the Act are replaced by the following:

(ii) where rights under the agreement were not acquired by the taxpayer as a result of a disposition of rights to which subsection 7(1.4) applied,

(A) the amount payable by the taxpayer to acquire the security under the agreement is not less than the amount by which

(I) the fair market value of the security at the time the agreement was made

exceeds

(II) the amount, if any, paid by the taxpayer to acquire the right to acquire the security, and

(B) at the time immediately after the agreement was made, the taxpayer was dealing at arm’s length with

(I) the particular qualifying person,

(II) each other qualifying person that, at the time, was an employer of the taxpayer and was not dealing at arm’s length with the particular qualifying person, and

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

(iii) where rights under the agreement were acquired by the taxpayer as a result of one or more dispositions to which subsection 7(1.4) applied,

(A) the amount payable by the taxpayer to acquire the security under the agreement is not less than the amount that was included, in respect of the security, in the amount determined under subparagraph 7(1.4)(c)(ii) with respect to the most recent of those dispositions,

(B) at the time immediately after the agreement the rights under which were the subject of the first of those dispositions (in this subparagraph referred to as the “original agreement”) was made, the taxpayer was dealing at arm’s length with

(I) the qualifying person that made the original agreement,

(II) each other qualifying person that, at the time, was an employer of the taxpayer and was not dealing at arm’s length with the qualifying person that made the original agreement, and

(III) the qualifying person of which the taxpayer had, under the original agreement, a right to acquire a security,

(C) the amount that was included, in respect of each particular security that the taxpayer had a right to acquire under the original agreement, in the amount determined under subparagraph 7(1.4)(c)(iv) with respect to the first of those dispositions was not less than the amount by which

(I) the fair market value of the particular security at the time the original agreement was made

exceeded

(II) the amount, if any, paid by the taxpayer to acquire the right to acquire the security, and

(D) for the purpose of determining if the condition in paragraph 7(1.4)(c) was satisfied with respect to each of the particular dispositions following the first of those dispositions,

(I) the amount that was included, in respect of each particular security that could be acquired under the agreement the rights under which were the subject of the particular disposition, in the amount determined under subparagraph 7(1.4)(c)(iv) with respect to the particular disposition

was not less than

(II) the amount that was included, in respect of the particular security, in the amount determined under subparagraph 7(1.4)(c)(ii) with respect to the last of those dispositions preceding the particular disposition;

(3) Subsection 110(1) of the Act is amended by adding the following after paragraph (d):

Marginal note:Charitable donation of employee option securities

(d.01) subject to subsection (2.1), where the taxpayer disposes of a security acquired in the year by the taxpayer under an agreement referred to in subsection 7(1) by making a gift of the security to a qualified donee (other than a private foundation), an amount in respect of the disposition of the security equal to 1/4 of the lesser of the benefit deemed by paragraph 7(1)(a) to have been received by the taxpayer in the year in respect of the acquisition of the security and the amount that would have been that benefit had the value of the security at the time of its acquisition by the taxpayer been equal to the value of the security at the time of the disposition, if

(i) the security is a security described in subparagraph 38(a.1)(i),

(ii) the taxpayer acquired the security after February 27, 2000 and before 2002,

(iii) the gift is made in the year and on or before the day that is 30 days after the day on which the taxpayer acquired the security, and

(iv) the taxpayer is entitled to a deduction under paragraph (d) in respect of the acquisition of the security;

(4) Paragraphs 110(1)(d.1), (d.2) and (d.3) of the Act are amended by replacing the reference to the fraction “1/4” with a reference to the fraction “1/2”.

(5) Subsection 110(1.5) of the Act is replaced by the following:

Marginal note:Determination of amounts relating to employee security options

(1.5) For the purpose of paragraph (1)(d),

(a) the amount payable by a taxpayer to acquire a security under an agreement referred to in subsection 7(1) shall be determined without reference to any change in the value of a currency of a country other than Canada, relative to Canadian currency, occurring after the agreement was made;

(b) the fair market value of a security at the time an agreement in respect of the security was made shall be determined on the assumption that all specified events associated with the security that occurred after the agreement was made and before the sale or issue of the security or the disposition of the taxpayer’s rights under the agreement in respect of the security, as the case may be, had occurred immediately before the agreement was made; and

(c) in determining the amount that was included, in respect of a security that a qualifying person has agreed to sell or issue to a taxpayer, in the amount determined under subparagraph 7(1.4)(c)(ii) for the purpose of determining if the condition in paragraph 7(1.4)(c) was satisfied with respect to a particular disposition, an assumption shall be made that all specified events associated with the security that occurred after the particular disposition and before the sale or issue of the security or the taxpayer’s subsequent disposition of rights under the agreement in respect of the security, as the case may be, had occurred immediately before the particular disposition.

Meaning of “specified event”

(1.6) For the purpose of subsection (1.5), a specified event associated with a security is

(a) where the security is a share of the capital stock of a corporation,

(i) a subdivision or consolidation of shares of the capital stock of the corporation,

(ii) a reorganization of share capital of the corporation, and

(iii) a stock dividend of the corporation; and

(b) where the security is a unit of a mutual fund trust,

(i) a subdivision or consolidation of the units of the trust, and

(ii) an issuance of units of the trust as payment, or in satisfaction of a person’s right to enforce payment, out of the trust’s income (determined before the application of subsection 104(6)) or out of the trust’s capital gains.

Marginal note:Definitions in subsection 7(7)

(1.7) The definitions in subsection 7(7) apply for the purposes of subsections (1.5) and (1.6).

(6) Section 110 of the Act is amended by adding the following after subsection (2):

Marginal note:Charitable donation — proceeds of disposition of employee option securities

(2.1) Where a taxpayer, in exercising a right to acquire a security that a particular qualifying person has agreed to sell or issue to the taxpayer under an agreement referred to in subsection 7(1), directs a broker or dealer appointed or approved by the particular qualifying person (or by a qualifying person that does not deal at arm’s length with the particular qualifying person) to immediately dispose of the security and pay all or a portion of the proceeds of disposition of the security to a qualified donee,

(a) if the payment is a gift, the taxpayer is deemed, for the purpose of paragraph (1)(d.01), to have disposed of the security by making a gift of the security to the qualified donee at the time the payment is made; and

(b) the amount deductible under paragraph (1)(d.01) by the taxpayer in respect of the disposition of the security is the amount determined by the formula

A × B / C

where


is the amount that would be deductible under paragraph (1)(d.01) in respect of the disposition of the security if this subsection were read without reference to this paragraph,


is the amount of the payment, and


is the amount of the proceeds of disposition of the security.

(7) Subsections (1), (3) and (6) apply to the 2000 and subsequent taxation years except that, for the 2000 taxation year,

(a) the reference to the fraction “1/2” in the portion of paragraph 110(1)(d) of the Act before subparagraph 110(1)(d)(i), as enacted by subsection (1), shall be read as a reference to

(i) the fraction “1/4”, if the transaction, event or circumstance as a result of which a benefit is deemed by subsection 7(1) of the Act, as enacted by subsection 2(1), to have been received by a taxpayer occurred before February 28, 2000, and

(ii) the fraction “1/3”, if the transaction, event or circumstance as a result of which a benefit is deemed by subsection 7(1) of the Act, as enacted by subsection 2(1), to have been received by a taxpayer occurred after February 27, 2000 and before October 18, 2000; and

(b) the reference to the fraction “1/4” in the portion of paragraph 110(1)(d.01) of the Act before subparagraph 110(1)(d.01)(i), as enacted by subsection (3), shall be read as a reference to the fraction “1/3” if the transaction, event or circumstance as a result of which a benefit is deemed by subsection 7(1) of the Act, as enacted by subsection 2(1), to have been received by a taxpayer occurred after February 27, 2000 and before October 18, 2000.

(8) Subsections (2) and (5) apply to the 1998 and subsequent taxation years.

(9) Subsection (4) applies in respect of dispositions and exchanges that occur after February 27, 2000 except that, for dispositions and exchanges that occurred after February 27, 2000 and before October 18, 2000, the reference to the fraction “1/2” in paragraphs 110(1)(d.1) to (d.3) of the Act, as enacted by subsection (4), shall be read as a reference to the fraction “1/3”.

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

Marginal note:Ecological gifts

(d) the total of all amounts each of which is the fair market value of a gift of land, including a servitude for the use and benefit of a dominant land, a covenant or an easement, the fair market value of which is certified by the Minister of the Environment and that is certified by that Minister, or by a person designated by that Minister, to be ecologically sensitive land, the conservation and protection of which is, in the opinion of that Minister, or that person, important to the preservation of Canada’s environmental heritage, which gift was made by the corporation in the year or in any of the five preceding taxation years to

(2) Subsection 110.1(2) of the Act is replaced by the following:

Marginal note:Proof of gift

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

(a) a receipt for the gift that contains prescribed information;

(b) in the case of a gift described in paragraph (1)(c), the certificate issued under subsection 33(1) of the Cultural Property Export and Import Act; and

(c) in the case of a gift described in paragraph (1)(d), both certificates referred to in that paragraph.

(3) The portion of subsection 110.1(3) of the Act after paragraph (b) is replaced by the following:

such amount, not greater than the fair market value otherwise determined and not less than the adjusted cost base to the corporation of the property at that time, as the corporation designates in its return of income under section 150 for the year in which the gift is made is, if the making of the gift is proven by filing with the Minister a receipt containing prescribed information, deemed to be its proceeds of disposition of the property and, for the purposes of subsection (1), the fair market value of the gift made by the corporation.

(4) Subsection 110.1(5) of the Act is replaced by the following:

Marginal note:Ecological gifts

(5) For the purposes of applying subparagraph 69(1)(b)(ii), section 207.31 and this section in respect of a gift described in paragraph (1)(d) that is made by a taxpayer and that is a servitude, covenant or easement to which land is subject, the greater of

(a) the fair market value otherwise determined of the gift, and

(b) the amount by which the fair market value of the land is reduced as a result of the making of the gift

is deemed to be the fair market value (or, for the purpose of subsection (3), the fair market value otherwise determined) of the gift at the time the gift was made and, subject to subsection (3), to be the taxpayer’s proceeds of disposition of the gift.

(5) Subsection 110.1(5) of the Act, as enacted by subsection (4), is replaced by the following:

Marginal note:Ecological gifts

(5) For the purposes of applying subparagraph 69(1)(b)(ii), this section and section 207.31 in respect of a gift described in paragraph (1)(d) that is made by a taxpayer, the amount that is the fair market value (or, for the purpose of subsection (3), the fair market value otherwise determined) of the gift at the time the gift was made and, subject to subsection (3), the taxpayer’s proceeds of disposition of the gift, is deemed to be the amount determined by the Minister of the Environment to be

(a) where the gift is land, the fair market value of the gift; or

(b) where the gift is a servitude, covenant or easement to which land is subject, the greater of

(i) the fair market value otherwise determined of the gift, and

(ii) the amount by which the fair market value of the land is reduced as a result of the making of the gift.

(6) Subsections (1), (2) and (5) apply in respect of gifts made after February 27, 2000, except that subsection 110.1(2) of the Act, as enacted by subsection (2), shall be read without reference to paragraph 110.1(2)(b) in respect of gifts made before December 21, 2000.

(7) Subsection (3) applies in respect of gifts made after February 27, 1995.

(8) Subsection (4) applies in respect of gifts made after February 27, 1995 and before February 28, 2000.

86. (1) Subparagraph (a)(ii) of the definition “investment expense” in subsection 110.6(1) of the Act is replaced by the following:

(ii) paragraph 20(1)(j) or subsection 65(1), 66(4), 66.1(3), 66.2(2), 66.21(4) or 66.4(2),

(2) Paragraph (d) of the definition “investment expense” in subsection 110.6(1) of the Act is replaced by the following:

(d) 50% of the total of all amounts each of which is an amount deducted under subsection 66(4), 66.1(3), 66.2(2), 66.21(4) or 66.4(2) in computing the individual’s income for the year in respect of expenses

(i) incurred and renounced under subsection 66(12.6), (12.601), (12.62) or (12.64) by a corporation, or

(ii) incurred by a partnership of which the individual was a specified member in the fiscal period of the partnership in which the expense was incurred, and

(3) Paragraph 110.6(2)(a) of the Act is replaced by the following:

(a) the amount determined by the formula

[$250,000 – (A + B + C + D)] × E

where


is the total of all amounts each of which is an amount deducted under this section in computing the individual’s taxable income for a preceding taxation year that ended before 1988,


is the total of all amounts each of which is

(i) 3/4 of an amount deducted under this section in computing the individual’s taxable income for a preceding taxation year that ended after 1987 and before 1990 (other than amounts deducted under this section for a taxation year in respect of an amount that was included in computing an individual’s income for that year because of subparagraph 14(1)(a)(v) as that subparagraph applied for taxation years that ended before February 28, 2000), or

(ii) 3/4 of an amount deducted under this section in computing the individual’s taxable income for a preceding taxation year that began after February 27, 2000 and ended before October 18, 2000,


is 2/3 of the total of all amounts each of which is an amount deducted under this section in computing the individual’s taxable income

(i) for a preceding taxation year that ended after 1989 and before February 28, 2000, or

(ii) in respect of an amount that was included because of subparagraph 14(1)(a)(v) (as that subparagraph applied for taxation years that ended before February 28, 2000) in computing the individual’s income for a taxation year that began after 1987 and ended before 1990,


is the product obtained when the reciprocal of the fraction determined for E that applied to the taxpayer for a preceding taxation year that began before and included February 28, 2000 or October 17, 2000 is multiplied by the amount deducted under this subsection in computing the individual’s taxable income for that preceding year, and


is

(i) in the case of a taxation year that includes February 28, 2000 or October 17, 2000, the amount determined by the formula

2 × (F + G) / H

where


is the amount deemed by subsection 14(1.1) to be a taxable capital gain of the taxpayer for the taxation year,


is the amount by which the amount determined in respect of the taxpayer for the year under paragraph 3(b) exceeds the amount determined for F, and


is the total of

(A) the amount deemed by subsection 14(1.1) to be a taxable capital gain of the taxpayer for the taxation year multiplied by

(I) where that amount is determined by reference to paragraph 14(1.1)(a), the reciprocal of the fraction obtained by multiplying the fraction 3/4 by the fraction in paragraph 14(1)(b) that applies to the taxpayer for the taxation year,

(II) where that amount is determined by reference to paragraph 14(1.1)(b), and the taxation year does not end after February 27, 2000 and before October 18, 2000, 2, and

(III) where that amount is determined by reference to paragraph 14(1.1)(b), and the taxation year ends after February 27, 2000 and before October 18, 2000, 3/2, and

(B) the amount determined for G multiplied by the reciprocal of the fraction in paragraph 38(a) that applies to the taxpayer for the taxation year, and

(ii) in any other case, 1,

(4) Paragraph 110.6(2.1)(a) of the Act is replaced by the following:

(a) the amount determined by the formula in paragraph (2)(a) in respect of the individual for the year,

(5) Subsection 110.6(4) of the Act is replaced by the following:

Marginal note:Maximum capital gains deduction

(4) Notwithstanding subsection (2) and (2.1), the total amount that may be deducted under this section in computing an individual’s income for a taxation year shall not exceed the amount determined by the formula in paragraph (2)(a) in respect of the individual for the year.

(6) The portion of subsection 110.6(12) of the Act before paragraph (a) is replaced by the following:

Marginal note:Trust deduction

(12) Notwithstanding any other provision of this Act, a trust described in paragraph 104(4)(a) or (a.1) (other than a trust that elected under subsection 104(5.3), an alter ego trust or a joint spousal or common-law partner trust) may, in computing its taxable income for its taxation year that includes the day determined under paragraph 104(4)(a) or (a.1), as the case may be, in respect of the trust, deduct under this section an amount equal to the least of

(7) Paragraph 110.6(12)(c) of the Act is replaced by the following:

(c) the amount, if any, by which the amount determined by the formula in paragraph (2)(a) in respect of the taxpayer’s spouse or common-law partner for the taxation year in which that spouse or common-law partner died exceeds the amount deducted under this section for that taxation year by that spouse or common-law partner.

(8) Subsections (1) and (2) apply to taxation years that begin after 2000.

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

(10) Subsection (6) applies to the 2000 and subsequent taxation years.

(11) Subsection (7) applies to taxation years that end after February 27, 2000, except that the amount determined under paragraph 110.6(12)(c) of the Act, as enacted by subsection (7), in computing a trust’s taxable income for its particular taxation year that includes February 28, 2000 or October 17, 2000, or began after February 28, 2000 and ended before October 17, 2000, is deemed to be equal to the amount determined under that paragraph (without reference to this subsection) multiplied by the quotient obtained when the fraction in paragraph 38(a) of the Act, as enacted by subsection 22(1), that applies to the trust for its particular year is divided by the fraction in paragraph 38(a) of the Act, as enacted by subsection 22(1), that applies to the taxpayer’s spouse or common-law partner for the taxation year in which the spouse or common-law partner died.

87. (1) Subclause 111(1)(e)(ii)(C)(I) of the Act is replaced by the following:

(I) the foreign resource pool expenses, if any, incurred by the partnership in that fiscal period,

(2) The description of E in the definition “non-capital loss” in subsection 111(8) of the Act is replaced by the following:


is the total of all amounts each of which is the taxpayer’s loss for the year from an office, employment, business or property, the taxpayer’s allowable business investment loss for the year, an amount deducted under paragraph (1)(b) or section 110.6 in computing the taxpayer’s taxable income for the year or an amount that may be deducted under any of paragraphs 110(1)(d) to (d.3), (f), (j) and (k), section 112 and subsections 113(1) and 138(6) in computing the taxpayer’s taxable income for the year, and

(3) The description of B in the definition “non-capital loss” in subsection 111(8) of the Act is replaced by the following:


is the amount, if any, determined in respect of the taxpayer for the year under section 110.5 or subparagraph 115(1)(a)(vii),

(4) The first formula in the definition “pre-1986 capital loss balance” in subsection 111(8) of the Act is replaced by the following:

(A + B) – (C + D + E + E.1)

(5) The portion of the definition “pre-1986 capital loss balance” in subsection 111(8) of the Act after the description of B is replaced by the following:


is the total of all amounts deducted under section 110.6 in computing the individual’s taxable income for taxation years that end before 1988 or after October 17, 2000,


is 3/4 of the total of all amounts each of which is an amount deducted under section 110.6 in computing the individual’s taxable income for a taxation year, preceding the particular year, that

(a) ended after 1987 and before 1990, or

(b) began after February 27, 2000 and ended before October 18, 2000,


is 2/3 of the total of all amounts deducted under section 110.6 in computing the individual’s taxable income for taxation years, preceding the particular year, that ended after 1989 and before February 28, 2000, and

E.1 
is the amount determined by the formula
J × (0.5 / K)

where


is the amount deducted by the individual under section 110.6 for a taxation year of the individual, preceding the particular year, that includes February 28, 2000 or October 17, 2000, and


is the fraction in paragraph 38(a) that applies to the individual for the individual’s taxation year referred to in the description of J.

(6) Paragraph 111(9)(a) of the Act is replaced by the following:

(a) in the part of the year throughout which the taxpayer was non-resident, if section 114 applies to the taxpayer in respect of the year, and

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

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

(9) Subsection (3) applies after June 27, 1999.

(10) Subsections (4) and (5) apply to taxation years that end after February 27, 2000.

(11) Subsection (6) applies to the 1998 and subsequent taxation years.

88. (1) Subsection 112(2.2) of the Act is replaced by the following:

Marginal note:Guaranteed shares

(2.2) No deduction may be made under subsection (1), (2) or 138(6) in computing the taxable income of a particular corporation in respect of a dividend received on a share of the capital stock of a corporation that was issued after 8:00 p.m. Eastern Daylight Saving Time, June 18, 1987 where

(a) a person or partnership (in this subsection and subsection (2.21) referred to as the “guarantor”) that is a specified financial institution or a specified person in relation to any such institution, but that is not the issuer of the share or an individual other than a trust, is, at or immediately before the time the dividend is paid, obligated, either absolutely or contingently and either immediately or in the future, to effect any undertaking (in this subsection and subsections (2.21) and (2.22) referred to as a “guarantee agreement”), including any guarantee, covenant or agreement to purchase or repurchase the share and including the lending of funds to or the placing of amounts on deposit with, or on behalf of, the particular corporation or any specified person in relation to the particular corporation given to ensure that

(i) any loss that the particular corporation or a specified person in relation to the particular corporation may sustain by reason of the ownership, holding or disposition of the share or any other property is limited in any respect, or

(ii) the particular corporation or a specified person in relation to the particular corporation will derive earnings by reason of the ownership, holding or disposition of the share or any other property; and

(b) the guarantee agreement was given as part of a transaction or event or a series of transactions or events that included the issuance of the share.

Marginal note:Exceptions

(2.21) Subsection (2.2) does not apply to a dividend received by a particular corporation on

(a) a share that is at the time the dividend is received a share described in paragraph (e) of the definition “term preferred share” in subsection 248(1);

(b) a grandfathered share, a taxable preferred share issued before December 16, 1987 or a prescribed share;

(c) a taxable preferred share issued after December 15, 1987 and of a class of the capital stock of a corporation that is listed on a prescribed stock exchange where all guarantee agreements in respect of the share were given by one or more of the issuer of the share and persons that are related (otherwise than because of a right referred to in paragraph 251(5)(b)) to the issuer unless, at the time the dividend is paid to the particular corporation, dividends in respect of more than 10 per cent of the issued and outstanding shares to which the guarantee agreement applies are paid to the particular corporation or the particular corporation and specified persons in relation to the particular corporation; or

(d) a share

(i) that was not acquired by the particular corporation in the ordinary course of its business,

(ii) in respect of which the guarantee agreement was not given in the ordinary course of the guarantor’s business, and

(iii) the issuer of which is, at the time the dividend is paid, related (otherwise than because of a right referred to in paragraph 251(5)(b)) to both the particular corporation and the guarantor.

Marginal note:Interpretation

(2.22) For the purposes of subsections (2.2) and (2.21),

(a) where a guarantee agreement in respect of a share is given at any particular time after 8:00 p.m. Eastern Daylight Saving Time, June 18, 1987, otherwise than under a written arrangement to do so entered into before 8:00 p.m. Eastern Daylight Saving Time, June 18, 1987, the share is deemed to have been issued at the particular time and the guarantee agreement is deemed to have been given as part of a series of transactions that included the issuance of the share; and

(b) “specified person” has the meaning assigned by paragraph (h) of the definition “taxable preferred share” in subsection 248(1).

(2) Subparagraphs 112(3.2)(a)(iii) and (3.3)(a)(iii) of the Act are amended by replacing the reference to the fraction “1/4” with a reference to the fraction “1/2”.

(3) Subsection (1) applies in respect of dividends received after 1998.

(4) Subsection (2) applies to dispositions that occur after February 27, 2000 except that, for dispositions that occurred before October 18, 2000, the reference to the fraction “1/2” in subparagraphs 112(3.2)(a)(iii) and (3.3)(a)(iii) of the Act, as enacted by subsection (2), shall be read as a reference to the fraction “1/3”.

89. (1) Sections 114 and 114.1 of the Act are replaced by the following:

Marginal note:Individual resident in Canada for only part of year

114. Notwithstanding subsection 2(2), 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

(a) the amount that would be the individual’s income for the year if the individual had no income or losses, for the part of the year throughout which the individual was non-resident, other than

(i) income or losses described in paragraphs 115(1)(a) to (c), and

(ii) income that would have been included in the individual’s taxable income earned in Canada for the year under subparagraph 115(1)(a)(v) if the part of the year throughout which the individual was non-resident were the whole taxation year,

exceeds the total of

(b) the deductions permitted by subsection 111(1) and, to the extent that they relate to amounts included in computing the amount determined under paragraph (a), the deductions permitted by any of paragraphs 110(1)(d) to (d.2) and (f), and

(c) any other deduction permitted for the purpose of computing taxable income to the extent that

(i) it can reasonably be considered to be applicable to the part of the year throughout which the individual was resident in Canada, or

(ii) if all or substantially all of the individual’s income for the part of the year throughout which the individual was non-resident is included in the amount determined under paragraph (a), it can reasonably be considered to be applicable to that part of the year.

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

90. (1) Subparagraph 115(1)(a)(i) of the Act is replaced by the following:

(i) incomes from the duties of offices and employments performed by the non-resident person in Canada and, if the person was resident in Canada at the time the person performed the duties, outside Canada,

(2) Subparagraph 115(1)(a)(ii) of the Act is replaced by the following:

(ii) incomes from businesses carried on by the non-resident person in Canada which, in the case of the Canadian banking business of an authorized foreign bank, is, subject to this Part, the profit from that business computed using the bank’s branch financial statements (within the meaning assigned by subsection 20.2(1),

(3) Paragraph 115(1)(a) of the Act is amended by striking out the word “and” at the end of subparagraph (v), by adding the word “and” at the end of subparagraph (vi) and by adding the following after subparagraph (vi):

(vii) in the case of an authorized foreign bank, the amount claimed by the bank to the extent that the inclusion of the amount in income

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

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

(4) Paragraphs 115(1)(b) and (b.1) of the Act are replaced by the following:

(b) the only taxable capital gains and allowable capital losses referred to in paragraph 3(b) were taxable capital gains and allowable capital losses from dispositions of taxable Canadian properties (other than treaty-protected properties), and

(5) Paragraph 115(1)(d) of the Act is replaced by the following:

(d) the deductions permitted by subsection 111(1) and, to the extent that they relate to amounts included in computing the amount determined under any of paragraphs (a) to (c), the deductions permitted by any of paragraphs 110(1)(d) to (d.2) and (f) and subsection 110.1(1),

(6) Subsection 115(1) of the Act is amended by striking out the word “and” at the end of paragraph (e) and by adding the following after paragraph (e):

(e.1) the deduction permitted by subsection (4.1), and

(7) Paragraphs 115(2)(b) and (b.1) of the Act are replaced by the following:

(b) a student attending, or a teacher teaching at, an educational institution outside Canada that is a university, college or other educational institution providing courses at a post-secondary school level, who in any preceding taxation year ceased to be resident in Canada in the course of or subsequent to moving to attend or to teach at the institution,

(b.1) an individual who in any preceding taxation year ceased to be resident in Canada in the course of or subsequent to moving to carry on research or any similar work under a grant received by the individual to enable the individual to carry on the research or work,

(8) Section 115 of the Act is amended by adding the following after subsection (2):

Marginal note:Non-resident actors

(2.1) Notwithstanding subsection (1), where a non-resident person is liable to tax under subsection 212(5.1), or would if this Act were read without reference to subsection 212(5.2) be so liable, in respect of an amount paid, credited or provided in a particular taxation year, the amount shall not be included in computing the non-resident person’s taxable income earned in Canada for any taxation year unless a valid election is made under subsection 216.1(1) in respect of the non-resident person for the particular year.

Marginal note:Deferred payment by actor’s corporation

(2.2) Where a corporation is liable to tax under subsection 212(5.1) in respect of a corporation payment (within the meaning assigned by subsection 212(5.2)) made in a taxation year in respect of an actor and, in a subsequent year, the corporation makes an actor payment (within the meaning assigned by subsection 212(5.2)) to or for the benefit of the actor, the amount of the actor payment is not deductible in computing the income of the corporation for any taxation year and is not included in computing the taxable income earned in Canada of the actor for any taxation year.

(9) Subsection 115(3) of the Act is repealed.

(10) Section 115 of the Act is amended by adding the following after subsection (4):

Marginal note:Foreign resource pool expenses

(4.1) Where a taxpayer ceases at any time after February 27, 2000 to be resident in Canada, a particular taxation year of the taxpayer ends after that time and the taxpayer was non-resident throughout the period (in this subsection referred to as the “non-resident period”) that begins at that time and ends at the end of the particular year,

(a) in computing the taxpayer’s taxable income earned in Canada for the particular year, there may be deducted each amount that would be permitted to be deducted in computing the taxpayer’s income for the particular year under subsection 66(4) or 66.21(4) if

(i) subsection 66(4) were read without reference to the words “who is resident throughout a taxation year in Canada” and as if the amount determined under subparagraph 66(4)(b)(ii) were nil, and

(ii) subsection 66.21(4) were read without reference to the words “throughout which the taxpayer is resident in Canada” and as if the amounts determined under subparagraph 66.21(4)(a)(ii) and paragraph 66.21(4)(b) were nil; and

(b) an amount deducted under this subsection in computing the taxpayer’s taxable income earned in Canada for the particular year is deemed, for the purpose of applying subsection 66(4) or 66.21(4), as the case may be, to a subsequent taxation year, to have been deducted in computing the taxpayer’s income for the particular year.

(11) Subsections (1) and (7) apply to the 1998 and subsequent taxation years except that, if an individual who ceased at any time after 1992 and before October 2, 1996 to be resident in Canada elects under subsection 124(1) in respect of that cessation of residence, subparagraph 115(1)(a)(i) of the Act, as enacted by subsection (1), applies to income received by the individual after that cessation of residence.

(12) Subsections (2) and (3) apply after June 27, 1999.

(13) Subsections (4) and (9) apply after October 1, 1996 except that, in its application to dispositions that occurred before the 1998 taxation year, paragraph 115(1)(b) of the Act, as enacted by subsection (4), shall be read as follows:

(b) the only taxable capital gains and allowable capital losses referred to in paragraph 3(b) were taxable capital gains and allowable capital losses from dispositions of taxable Canadian properties, and

(14) Subsection (5) applies to the 2000 and subsequent taxation years.

(15) Subsections (6) and (10) apply to taxation years that begin after February 27, 2000.

(16) Subsection (8) applies in respect of amounts paid, credited or provided after 2000.

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

Marginal note:Disposition by non-resident person of certain property

116. (1) If a non-resident person proposes to dispose of any taxable Canadian property (other than property described in subsection (5.2) and excluded property) the non-resident person may, at any time before the disposition, send to the Minister a notice setting out

(2) Subsections 116(2), (4) and (5) of the Act are amended by replacing the reference to the percentage “33 1/3%” with a reference to the percentage “25%”.

(3) The portion of subsection 116(5.1) of the Act before paragraph (a) is replaced by the following:

Marginal note:Gifts, etc.

(5.1) If a non-resident person has disposed of or proposes to dispose of a life insurance policy in Canada, a Canadian resource property or a taxable Canadian property other than

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

Marginal note:Certificates for dispositions

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

(5) Paragraphs 116(6)(a) and (b) of the Act are replaced by the following:

(a) a property that is a taxable Canadian property solely because a provision of this Act deems it to be a taxable Canadian property;

(a.1) a property (other than real property situated in Canada, a Canadian resource property or a timber resource property) that is described in an inventory of a business carried on in Canada by the person;

(b) a share of a class of shares of the capital stock of a corporation that is listed on a prescribed stock exchange;

(6) Subsection 116(6) of the Act is amended by striking out the word “or” at the end of paragraph (d) and by replacing paragraph (e) with the following:

(e) property of a non-resident insurer that

(i) is licensed or otherwise authorized under the laws of Canada or a province to carry on an insurance business in Canada, and

(ii) carries on an insurance business, within the meaning of subsection 138(1) of the Act, in Canada;

(f) property of an authorized foreign bank that is used or held in the course of the bank’s Canadian banking business;

(g) an option in respect of property referred to in any of paragraphs (a) to (f) whether or not such property is in existence; and

(h) an interest in property referred to in any of paragraphs (a) to (g).

(7) Subsections (1), (3) and (4) and paragraphs 116(6)(a) and (a.1) of the Act, as enacted by subsection (5), apply after October 1, 1996.

(8) Subsection (2) applies to taxation years that end after February 27, 2000 except that, for a taxation year that ended after February 27, 2000 and before October 18, 2000, the reference in subsections 116(2), (4) and (5) of the Act, as enacted by subsection (2), to the percentage “25%” shall be read as a reference to the percentage “30%”.

(9) Paragraph 116(6)(b) of the Act, as enacted by subsection (5), and subsection (6) apply after June 27, 1999.

92. (1) Subsection 117(2) of the Act is replaced by the following:

Marginal note:Rate for 2000

(2) The tax payable under this Part by an individual on the individual’s taxable income or taxable income earned in Canada, as the case may be, (in this subdivision referred to as the “amount taxable”) for the 2000 taxation year is

(a) 17% of the amount taxable, if the amount taxable does not exceed $30,004;

(b) $5,101 plus 25% of the amount by which the amount taxable exceeds $30,004, if the amount taxable exceeds $30,004 and does not exceed $60,009; and

(c) $12,602 plus 29% of the amount by which the amount taxable exceeds $60,009, if the amount taxable exceeds $60,009.

(2) Subsection 117(2) of the Act, as enacted by subsection (1), is replaced by the following:

Marginal note:Rates for years after 2000

(2) The tax payable under this Part by an individual on the individual’s taxable income or taxable income earned in Canada, as the case may be, (in this subdivision referred to as the “amount taxable”) for a taxation year is

(a) 16% of the amount taxable, if the amount taxable does not exceed $30,754;

(b) $4,921 plus 22% of the amount by which the amount taxable exceeds $30,754, if the amount taxable exceeds $30,754 and does not exceed $61,509;

(b.1) $11,687 plus 26% of the amount by which the amount taxable exceeds $61,509, if the amount taxable exceeds $61,509 and does not exceed $100,000; and

(c) $21,695 plus 29% of the amount by which the amount taxable exceeds $100,000, if the amount taxable exceeds $100,000.

Marginal note:Minimum thresholds for 2004

(3) Each of the amounts of $30,754, $61,509 and $100,000 referred to in subsection (2) is deemed, for the purposes of applying subsection (2) to the 2004 taxation year, to be the greater of

(a) the amount that would be used for the 2004 taxation year if this section were read without reference to this subsection, and

(b) in the case of

(i) the amount of $30,754, $35,000,

(ii) the amount of $61,509, $70,000, and

(iii) the amount of $100,000, $113,804.

(3) Subsection (1) applies to the 2000 taxation year.

(4) Subsection 117(2) of the Act, as enacted by subsection (2), applies to the 2001 and subsequent taxation years.

93. (1) Clause (c.1)(ii)(B) of the description of B in subsection 118(1) of the Act is replaced by the following:

(B) resident in Canada and is the parent, grandparent, brother, sister, aunt, uncle, nephew or niece of the individual or of the individual’s spouse or common-law partner, and

(2) The portion of paragraph 118(1)(c.1) of the Act after subparagraph (iii) is replaced by the following:

the amount determined by the formula

$15,453 – D.1

where

D.1 
is the greater of $11,953 and the particular person’s income for the year,

(3) The portion of paragraph 118(1)(d) of the Act after subparagraph (ii) is replaced by the following:

the amount determined by the formula

$8,466 – E

where


is the greater of $4,966 and the dependant’s income for the year, and

(4) Section 118 of the Act is amended by adding the following after subsection (3):

Marginal note:Minimum amounts for 2004

(3.1) Each of the amounts of $7,131, $6,055 and $606 referred to in paragraphs (a) to (c) of the description of B in subsection (1) is deemed, for the 2004 taxation year, to be the greater of

(a) the amount in respect thereof that would be used for that year if this section were read without reference to this subsection, and

(b) in the case of

(i) the amounts of $7,131, $8,000,

(ii) the amounts of $6,055, $6,800, and

(iii) the amounts of $606, $680.

(5) Subsection (1) applies to the 1998 and subsequent taxation years, except that clause (c.1)(ii)(B) of the description of B in subsection 118(1) of the Act, as enacted by subsection (1), shall be read without reference to “or common-law partner” for any taxation year that ends before 2001 unless a valid election is made by the taxpayer under section 144 of the Modernization of Benefits and Obligations Act, that that Act apply to the taxpayer in respect of one or more taxation years that includes the year.

(6) Subsections (2) and (3) apply to the 2001 and subsequent taxation years.

94. (1) The portion of the definition “total ecological gifts” in subsection 118.1(1) of the Act before paragraph (a) is replaced by the following:

“total ecological gifts”

« total des dons de biens écosensibles »

“total ecological gifts” of an individual for a taxation year means the total of all amounts each of which is the fair market value of a gift (other than a gift the fair market value of which is included in the total cultural gifts of the individual for the year) of land, including a servitude for the use and benefit of a dominant land, a covenant or an easement, the fair market value of which is certified by the Minister of the Environment and that is certified by that Minister, or a person designated by that Minister, to be ecologically sensitive land, the conservation and protection of which is, in the opinion of that Minister, or that person, important to the preservation of Canada’s environmental heritage, which gift was made by the individual in the year or in any of the five immediately preceding taxation years to

(2) Subsection 118.1(2) of the Act is replaced by the following:

Marginal note:Proof of gift

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

(a) a receipt for the gift that contains prescribed information;

(b) in the case of a gift described in the definition “total cultural gifts” in subsection (1), the certificate issued under subsection 33(1) of the Cultural Property Export and Import Act; and

(c) in the case of a gift described in the definition “total ecological gifts” in subsection (1), both certificates referred to in that definition.

(3) Subsection 118.1(4) of the Act is replaced by the following:

Marginal note:Gift in year of death

(4) Subject to subsection (13), a gift made by an individual in the particular taxation year in which the individual dies (including, for greater certainty, a gift otherwise deemed by subsection (5), (5.2), (5.3), (7), (7.1), (13) or (15) to have been so made) is deemed, for the purpose of this section other than this subsection, to have been made by the individual in the preceding taxation year, and not in the particular year, to the extent that an amount in respect of the gift is not deducted in computing the individual’s tax payable under this Part for the particular year.

(4) Section 118.1 of the Act is amended by adding the following after subsection (5):

Marginal note:Direct designation — insurance proceeds

(5.1) Subsection (5.2) applies to an individual in respect of a life insurance policy where

(a) the policy is a life insurance policy under which, immediately before the individual’s death, the individual’s life was insured;

(b) a transfer of money, or a transfer by means of a negotiable instrument, is made as a consequence of the individual’s death and solely because of the obligations under the policy, from an insurer to a qualified donee (other than a transfer the amount of which is not included in computing the income of the individual or the individual’s estate for any taxation year but would have been included in computing the income of the individual or the individual’s estate for a taxation year if the transfer had been made to the individual’s legal representative for the benefit of the individual’s estate and this Act were read without reference to subsection 70(3));

(c) immediately before the individual’s death,

(i) the individual’s consent would have been required to change the recipient of the transfer described in paragraph (b), and

(ii) the donee was neither a policyholder under the policy, nor an assignee of the individual’s interest under the policy; and

(d) the transfer occurs within the 36 month period that begins at the time of the death (or, where written application to extend the period has been made to the Minister by the individual’s legal representative, within such longer period as the Minister considers reasonable in the circumstances).

Marginal note:Deemed gift — subsection (5.1)

(5.2) Where this subsection applies,

(a) for the purpose of this section (other than subsection (5.1) and this paragraph), the transfer described in subsection (5.1) is deemed to be a gift made, immediately before the individual’s death, by the individual to the qualified donee referred to in subsection (5.1); and

(b) the fair market value of the gift is deemed to be the fair market value, at the time of the individual’s death, of the right to that transfer (determined without reference to any risk of default with regard to obligations of the insurer).

Marginal note:Direct designation — RRSPs and RRIFs

(5.3) Where as a consequence of an individual’s death, a transfer of money, or a transfer by means of a negotiable instrument, is made, from a registered retirement savings plan or registered retirement income fund (other than a plan or fund of which a licensed annuities provider is the issuer or carrier, as the case may be) to a qualified donee, solely because of the donee’s interest as a beneficiary under the plan or fund, the individual was the annuitant (within the meaning assigned by subsection 146(1) or 146.3(1)) under the plan or fund immediately before the individual’s death and the transfer occurs within the 36-month period that begins at the time of the death (or, where written application to extend the period has been made to the Minister by the individual’s legal representative, within such longer period as the Minister considers reasonable in the circumstances),

(a) for the purposes of this section (other than this paragraph), the transfer is deemed to be a gift made, immediately before the individual’s death, by the individual to the donee; and

(b) the fair market value of the gift is deemed to be the fair market value, at the time of the individual’s death, of the right to the transfer (determined without reference to any risk of default with regard to the obligations of the issuer of the plan or the carrier of the fund).

(5) The portion of subsection 118.1(6) of the Act after paragraph (b) is replaced by the following:

and the fair market value of the property otherwise determined at that time exceeds its adjusted cost base to the individual, such amount, not greater than the fair market value and not less than the adjusted cost base to the individual of the property at that time, as the individual or the individual’s legal representative designates in the individual’s return of income under section 150 for the year in which the gift is made is, if the making of the gift is proven by filing with the Minister a receipt containing prescribed information, deemed to be the individual’s proceeds of disposition of the property and, for the purposes of subsection (1), the fair market value of the gift made by the individual.

(6) Subsections 118.1(7) and (7.1) of the Act are replaced by the following:

Marginal note:Gifts of art

(7) Except where subsection (7.1) applies, where at any time, whether by the individual’s will or otherwise, an individual makes a gift described in the definition “total charitable gifts” or “total Crown gifts” in subsection (1) of a work of art that was

(a) created by the individual and that is property in the individual’s inventory, or

(b) acquired under circumstances where subsection 70(3) applied,

and at that time the fair market value of the work of art exceeds its cost amount to the individual, the following rules apply:

(c) where the gift is made as a consequence of the death of the individual, the gift is deemed to have been made immediately before the death, and

(d) the amount, not greater than that fair market value at the time the gift is made and not less than the cost amount of the property to the individual, that is designated in the individual’s return of income under section 150 for the year in which the gift is made is, if the making of the gift is proven by filing with the Minister a receipt containing prescribed information, deemed to be the individual’s proceeds of disposition of the work of art and, for the purposes of subsection (1), the fair market value of the gift made by the individual.

Marginal note:Gifts of cultural property

(7.1) Where at any particular time, whether by the individual’s will or otherwise, an individual makes a gift described in the definition “total cultural gifts” in subsection (1) of a work of art that was

(a) created by the individual and that is property in the individual’s inventory, or

(b) acquired under circumstances where subsection 70(3) applied,

and at that time the fair market value of the work of art exceeds its cost amount to the individual, the following rules apply:

(c) where the gift is made as a consequence of the death of the individual, the individual is deemed to have made the gift immediately before the death, and

(d) the individual is deemed to have received at the particular time proceeds of disposition in respect of the gift equal to its cost amount to the individual at that time.

(7) Subsection 118.1(10.1) of the Act is replaced by the following:

Marginal note:Determination of fair market value

(10.1) For the purposes of subparagraph 69(1)(b)(ii), subsection 70(5) and sections 110.1, 207.31 and this section, where at any time the Canadian Cultural Property Export Review Board or the Minister of the Environment determines or redetermines an amount to be the fair market value of a property that is the subject of a gift described in paragraph 110.1(1)(a), or in the definition “total charitable gifts” in subsection (1), made by a taxpayer within the two-year period that begins at that time, an amount equal to the last amount so determined or redetermined within the period is deemed to be the fair market value of the gift at the time the gift was made and, subject to subsections (6), (7), (7.1) and 110.1(3), to be the taxpayer’s proceeds of disposition of the gift.

Marginal note:Request for determination by the Minister of the Environment

(10.2) Where a person disposes or proposes to dispose of a property that would, if the disposition were made and the certificates described in paragraph 110.1(1)(d) or in the definition “total ecological gifts” in subsection (1) were issued by the Minister of the Environment, be a gift described in those provisions, the person may request, by notice in writing to that Minister, a determination of the fair market value of the property.

Marginal note:Duty of Minister of the Environment

(10.3) In response to a request made under subsection (10.2), the Minister of the Environment shall with all due dispatch make a determination in accordance with subsection (12) or 110.1(5), as the case may be, of the fair market value of the property referred to in that request and give notice of the determination in writing to the person who has disposed of, or who proposes to dispose of, the property, except that no such determination shall be made if the request is received by that Minister after three years after the end of the person’s taxation year in which the disposition occurred.

Marginal note:Ecological gifts — redetermination

(10.4) Where the Minister of the Environment has, under subsection (10.3), notified a person of the amount determined by that Minister to be the fair market value of a property in respect of its disposition or proposed disposition,

(a) that Minister shall, on receipt of a written request made by the person on or before the day that is 90 days after the day that the person was so notified of the first such determination, with all due dispatch confirm or redetermine the fair market value;

(b) that Minister may, on that Minister’s own initiative, at any time redetermine the fair market value;

(c) that Minister shall in either case notify the person in writing of that Minister’s confirmation or redetermination; and

(d) any such redetermination is deemed to replace all preceding determinations and redeterminations of the fair market value of that property from the time at which the first such determination was made.

Marginal note:Certificate of Fair Market Value

(10.5) Where the Minister of the Environment determines under subsection (10.3) the fair market value of a property, or redetermines that value under subsection (10.4), and the property has been disposed of to a qualified donee described in paragraph 110.1(1)(d) or in the definition “total ecological gifts” in subsection (1), that Minister shall issue to the person who made the disposition a certificate that states the fair market value of the property so determined or redetermined and, where more than one certificate has been so issued, the last certificate is deemed to replace all preceding certificates from the time at which the first certificate was issued.

(8) Subsection 118.1(11) of the Act is replaced by the following:

Marginal note:Assessments

(11) Notwithstanding subsections 152(4) to (5), such assessments or reassessments of a taxpayer’s tax, interest or penalties payable under this Act for any taxation year shall be made as are necessary to give effect

(a) to a certificate issued under subsection 33(1) of the Cultural Property Export and Import Act or to a decision of a court resulting from an appeal made pursuant to section 33.1 of that Act; or

(b) to a certificate issued under subsection (10.5) or to a decision of a court resulting from an appeal made pursuant to subsection 169(1.1).

(9) Subsection 118.1(12) of the Act is replaced by the following:

Marginal note:Ecological gifts

(12) For the purpose of applying subparagraph 69(1)(b)(ii), subsection 70(5), section 207.31 and this section in respect of a gift described in the definition “total ecological gifts” in subsection (1) that is made by a taxpayer and that is a servitude, covenant or easement to which land is subject, the greater of

(a) the fair market value otherwise determined of the gift, and

(b) the amount by which the fair market value of the land is reduced as a result of the making of the gift

is deemed to be the fair market value (or, for the purpose of subsection (6), the fair market value otherwise determined) of the gift at the time the gift was made and, subject to subsection (6), to be the taxpayer’s proceeds of disposition of the gift.

(10) Subsection 118.1(12) of the Act, as enacted by subsection (9), is replaced by the following:

Marginal note:Ecological gifts

(12) For the purposes of applying subparagraph 69(1)(b)(ii), subsection 70(5), this section and section 207.31 in respect of a gift described in the definition “total ecological gifts” in subsection (1) that is made by an individual, the amount that is the fair market value (or, for the purpose of subsection (6), the fair market value otherwise determined) of the gift at the time the gift was made and, subject to subsection (6), the individual’s proceeds of disposition of the gift, is deemed to be the amount determined by the Minister of the Environment to be

(a) where the gift is land, the fair market value of the gift; or

(b) where the gift is a servitude, covenant or easement to which land is subject, the greater of

(i) the fair market value otherwise determined of the gift, and

(ii) the amount by which the fair market value of the land is reduced as a result of the making of the gift.

(11) Subsections (1), (2), (7), (8) and (10) apply in respect of gifts made, or proposed to be made, after February 27, 2000 except that subsection 118.1(2) of the Act, as enacted by subsection (2), shall be read without reference to paragraph 118.1(2)(b) in respect of gifts made before December 21, 2000.

(12) Subject to subsection (13), subsections (3) and (4) apply in respect of deaths that occur after 1998.

(13) For taxation years before 2000, subsection 118.1(4) of the Act, as enacted by subsection (3), shall be read without reference to subsections 118.1(7) and (7.1) of the Act except that, where a taxpayer or a taxpayer’s legal representative notifies the Minister of National Revenue in writing before 2002 of the intention of the taxpayer or the taxpayer’s legal representative that this subsection apply in respect of a gift made after 1996 and before 2000, subsection 118.1(4) of the Act, as enacted by subsection (3), applies to the taxation year in which the gift was made and shall be read, in respect of the 1996 to 1998 taxation years, without reference to subsections 118.1(5.2) and (5.3) of the Act.

(14) Subsection (5) applies in respect of gifts made after February 27, 1995.

(15) Subsection (6) applies to the 2000 and subsequent taxation years and, where a taxpayer or a taxpayer’s legal representative notifies the Minister of National Revenue in writing before 2002 of the intention of the taxpayer or the taxpayer’s legal representative that this subsection apply in respect of a gift made after 1996 and before 2000, subsection (6) applies to the taxation year in which the gift was made and, where paragraph 118.1(7)(d) of the Act, as enacted by subsection (6), applies, the amount designated in the notice in respect of the gift is deemed to have been validly designated for the purposes of that paragraph in the taxpayer’s return of income for the year in which the gift was made.

(16) Subsection (9) applies in respect of gifts made after February 27, 1995 and before February 28, 2000.

95. (1) Subsection 118.2(2) of the Act is amended by adding the following after paragraph (l.2):

(l.21) for reasonable expenses, relating to the construction of the principal place of residence of the patient who lacks normal physical development or has a severe and prolonged mobility impairment, that can reasonably be considered to be incremental costs incurred to enable the patient to gain access to, or to be mobile or functional within, the patient’s principal place of residence;

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

96. (1) The portion of subsection 118.3(1) of the French version of the Act before paragraph (a) is replaced by the following:

Marginal note:Crédit d’impôt pour déficience mentale ou physique

118.3 (1) Un montant est déductible dans le calcul de l’impôt payable par un particulier en vertu de la présente partie pour une année d’imposition, si les conditions suivantes sont réunies :

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

(a.1) the effects of the impairment are such that the individual’s ability to perform a basic activity of daily living is markedly restricted or would be markedly restricted but for therapy that

(i) is essential to sustain a vital function of the individual,

(ii) is required to be administered at least three times each week for a total duration averaging not less than 14 hours a week, and

(iii) cannot reasonably be expected to be of significant benefit to persons who are not so impaired,

(3) The portion of paragraph 118.3(1)(a.2) of the French version of the Act before subparagraph (i) is replaced by the following:

a.2) l’une des personnes suivantes atteste, sur le formulaire prescrit, qu’il s’agit d’une déficience mentale ou physique grave et prolongée dont les effets sont tels que la capacité du particulier d’accomplir une activité courante de la vie quotidienne est limitée de façon marquée ou le serait en l’absence des soins thérapeutiques mentionnés à l’alinéaa.1) :

(4) Paragraph 118.3(1)(a.2) of the Act is amended by adding the following after subparagraph (i):

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

(5) The portion of paragraph 118.3(1)(a.2) of the English version of the Act after subparagraph (v) is replaced by the following:

has certified in prescribed form that the impairment is a severe and prolonged mental or physical impairment the effects of which are such that the individual’s ability to perform a basic activity of daily living is markedly restricted or would be markedly restricted but for therapy referred to in paragraph (a.1),

(6) The portion of subsection 118.3(1) of the Act after paragraph (c) is replaced by the following:

there may be deducted in computing the individual’s tax payable under this Part for the year the amount determined by the formula

A × (B + C)

where


is the appropriate percentage for the year,


is $6,000, and


is

(a) where the individual has not attained the age of 18 years before the end of the year, the amount, if any, by which

(i) $3,500

exceeds

(ii) the amount, if any, by which

(A) the total of all amounts each of which is an amount paid in the year for the care or supervision of the individual and included in computing a deduction under section 63, 64 or 118.2 for a taxation year

exceeds

(B) $2,050, and

(b) in any other case, zero.

(7) Clause 118.3(2)(a)(i)(B) of the Act is replaced by the following:

(B) paragraph (c.1) or (d) of that description where the person is a parent, grandparent, child, grandchild, brother, sister, aunt, uncle, nephew or niece of the individual, or of the individual’s spouse or common-law partner, or

(8) Subsection 118.3(4) of the Act is replaced by the following:

Marginal note:Additional information

(4) Where a claim under this section or under section 118.8 is made in respect of an individual’s impairment

(a) if the Minister requests in writing information with respect to the individual’s impairment, its effects on the individual and, where applicable, the therapy referred to in paragraph (1)(a.1) that is required to be administered, from any person referred to in subsection (1) or (2) or section 118.8 in connection with such a claim, that person shall provide the information so requested to the Minister in writing; and

(b) if the information referred to in paragraph (a) is provided by a person referred to in paragraph (1)(a.2), the information so provided is deemed to be included in a certificate in prescribed form.

(9) Subsections (1) to (3) and (5) to (8) apply to the 2000 and subsequent taxation years except that, in applying subsection (6) to the 2000 taxation year, the references to “$6,000”, “$3,500” and “$2,050” in the descriptions of B and C in the formula in subsection 118.3(1) of the Act, as enacted by subsection (6), shall be read as references to “$4,293”, “$2,941” and “$2,000”, respectively.

(10) Subsection (4) applies to certifications made after October 17, 2000.

97. (1) The portion of subsection 118.4(2) of the Act before paragraph (a) is replaced by the following:

Marginal note:Reference to medical practitioners, etc.

(2) For the purposes of sections 63, 118.2, 118.3 and 118.6, a reference to an audiologist, dentist, medical doctor, medical practitioner, nurse, occupational therapist, optometrist, pharmacist, psychologist or speech-language pathologist is a reference to a person authorized to practise as such,

(2) Subsection (1) applies to certifications made after October 17, 2000.

98. (1) The portion of subsection 118.6(1) of the Act before the definition “designated educational institution” is replaced by the following:

Marginal note:Definitions

118.6 (1) For the purposes of sections 63 and 64 and this subdivision,

(2) Paragraphs (a) and (b) of the description of B in subsection 118.6(2) of the Act are replaced by the following:

(a) $400 is multiplied by the number of months in the year during which the individual is enrolled in a qualifying educational program as a full-time student at a designated educational institution, and

(b) $120 is multiplied by the number of months in the year (other than months described in paragraph (a)), each of which is a month during which the individual is enrolled at a designated educational institution in a specified educational program that provides that each student in the program spend not less than 12 hours in the month on courses in the program,

(3) The portion of subsection 118.6(2) of the Act after the description of B is replaced by the following:

if the enrolment is proven by filing with the Minister a certificate in prescribed form issued by the designated educational institution and containing prescribed information and, in respect of a designated educational institution described in subparagraph (a)(ii) of the definition “designated educational institution” in subsection (1), the individual has attained the age of 16 years before the end of the year and is enrolled in the program to obtain skills for, or improve the individual’s skills in, an occupation.

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

(5) Subsection (2) applies to the 2001 and subsequent taxation years.

(6) Subsection (3) applies to the 1999 and subsequent taxation years.

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


is the lesser of the value of B and the amount that would be the individual’s tax payable under this Part for the year if no amount were deductible under any of sections 118.1, 118.2, 118.5, 118.6, 118.62, 118.8, 118.9 and 121;

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

(b) the amount that would be the individual’s tax payable under this Part for the year if no amount were deductible under any of sections 118.1, 118.2, 118.5, 118.6, 118.62, 118.8, 118.9 and 121.

(3) Section 118.61 of the Act is amended by adding the following after subsection (2):

Marginal note:Unused tuition and education tax credits at the end of 2000

(3) For the purpose of determining the amount that may be deducted under subsection (2) in computing an individual’s tax payable for a taxation year that begins after 2000, the individual’s unused tuition fee and education tax credits at the end of the individual’s 2000 taxation year is deemed to be 16/17 of the amount that would be the individual’s unused tuition and education tax credits at the end of that year if this section were read without reference to this subsection.

(4) Subsections (1) and (2) apply to the 1999 and subsequent taxation years.

(5) Subsection (3) applies to the 2001 and subsequent taxation years.

100. (1) Paragraph (c) of the description of B in section 118.7 of the Act is replaced by the following:

(c) the amount by which

(i) the total of all amounts each of which is an amount payable by the individual in respect of self-employed earnings for the year as a contribution under the Canada Pension Plan or under a provincial pension plan within the meaning assigned by section 3 of that Act (not exceeding the maximum amount of such contributions payable by the individual for the year under the plan)

exceeds

(ii) the amount deductible under paragraph 60(e) in computing the individual’s income for the year.

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

101. (1) Subparagraph (ii) of the description of A in paragraph 118.81(a) of the Act is replaced by the following:

(ii) $800, and

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

102. (1) Section 119 of the Act is repealed.

(2) The Act is amended by adding the following after section 118.95:

Marginal note:Former resident — credit for tax paid

119. If at any particular time an individual was deemed by subsection 128.1(4) to have disposed of a capital property that was a taxable Canadian property of the individual throughout the period that began at the particular time and that ends at the first time, after the particular time, at which the individual disposes of the property, there may be deducted in computing the individual’s tax payable under this Part for the taxation year that includes the particular time the lesser of

(a) that proportion of the individual’s tax for the year otherwise payable under this Part (within the meaning assigned by paragraph (a) of the definition “tax for the year otherwise payable under this Part” in subsection 126(7)) that

(i) the individual’s taxable capital gain from the disposition of the property at the particular time

is of

(ii) the amount determined under paragraph 114(a) in respect of the individual for the year, and

(b) that proportion of the individual’s tax payable under Part XIII in respect of dividends received during the period by the individual in respect of the property and amounts deemed under Part XIII to have been paid during the period to the individual as dividends from corporations resident in Canada, to the extent that the amounts can reasonably be considered to relate to the property, that

(i) the amount by which the individual’s loss from the disposition of the property at the end of the period is reduced by subsection 40(3.7)

is of

(ii) the total amount of those dividends.

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

(4) Subsection (2) applies to dispositions after December 23, 1998 by individuals who cease to be resident in Canada after October 1, 1996.

103. (1) The portion of subsection 120(1) of the Act before paragraph (a) is replaced by the following:

Marginal note:Income not earned in a province

120. (1) There shall be added to the tax otherwise payable under this Part by an individual for a taxation year the amount that bears the same relation to 48% of the tax otherwise payable under this Part by the individual for the year that

(2) Subsection 120(2.1) of the Act is repealed.

(3) Paragraphs 120(3)(a) and (b) of the Act are replaced by the following:

(a) if section 114 applies to the individual in respect of the year, the amount determined under paragraph 114(a) in respect of the individual for the year;

(b) if the individual was non-resident throughout the year, the individual’s taxable income earned in Canada for the year determined without reference to paragraphs 115(1)(d) to (f); and

(4) Clause (a)(ii)(A) of the definition “tax otherwise payable under this Part” in subsection 120(4) of the Act is replaced by the following:

(A) section 119, subsection 120.4(2) and sections 126, 127, 127.4 and 127.41, and

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

(6) Subsections (2) and (4) apply to the 1996 and subsequent taxation years except that, in its application to taxation years that end before 2000, subsection (4) shall be read as follows:

(4) Paragraph (b) of the definition “tax otherwise payable under this Part” in subsection 120(4) of the Act is replaced by the following:

(b) the amount that, but for this section and subsection 117(6), would be the tax payable under this Part by the individual for the year if this Part were read without reference to any of sections 119, 126, 127 and 127.4.

(7) Subsection (3) applies to the 1998 and subsequent taxation years except that, for taxation years that end before 2000, paragraphs 120(3)(a) and (b) of the Act, as enacted by subsection (3), shall be read as follows:

(a) if section 114 applies to the individual in respect of the year, the amount determined under paragraph 114(a) in respect of the individual for the year; and

(b) if the individual was non-resident throughout the year, the individual’s taxable income earned in Canada for the year determined without reference to paragraphs 115(1)(d) to (f).

104. (1) Subsection 120.2(4) of the Act is replaced by the following:

Marginal note:Where subsection (1) does not apply

(4) Subsection (1) does not apply in respect of an individual’s return of income filed under subsection 70(2), paragraph 104(23)(d) or 128(2)(f) or subsection 150(4).

(2) Subsection (1) applies to the 1996 and subsequent taxation years.

105. (1) Subsection 122(2) of the Act is amended by striking out the word “and” at the end of paragraph (d), by adding the word “and” at the end of paragraph (e) and by adding the following after paragraph (e):

(f) has not received any property after December 17, 1999, where

(i) the property was received as a result of a transfer from another trust,

(ii) subsection (1) applied to a taxation year of the other trust that began before the property was so received, and

(iii) no change in the beneficial ownership of the property resulted from the transfer.

(2) Subsection (1) applies to the 1999 and subsequent taxation years.

106. (1) Paragraph 122.3(1)(e) of the Act is replaced by the following:

(e) the amount, if any, by which

(i) if the individual is resident in Canada throughout the year, the individual’s income for the year, and

(ii) if the individual is non-resident at any time in the year, the amount determined under paragraph 114(a) in respect of the taxpayer for the year

exceeds

(iii) the total of all amounts each of which is an amount deducted under section 110.6 or paragraph 111(1)(b) or deductible under paragraph 110(1)(d.2), (d.3), (f) or (j) in computing the individual’s taxable income for the year.

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

107. (1) Section 122.5 of the Act is amended by adding the following after subsection (5):

Marginal note:Exception

(5.1) No amount is deemed to be paid under subsection (3) by an individual for the 2000 taxation year if the individual is confined to a prison or similar institution at any time during the 12-month period that ends on June 30, 2002, unless the individual satisfies the Minister that the individual’s confinement is for a period of not more than six months included in that 12-month period.

(2) Subsection (1) applies to amounts deemed to be paid during months specified for the 2000 taxation year.

108. (1) Paragraph (b) of the description of A in subsection 122.51(2) of the Act is amended by replacing the reference to the fraction “25/17” with a reference to the fraction “25/16”.

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

109. (1) Paragraph (e) of the definition “eligible individual” in section 122.6 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) was determined before that time to be a member of a class defined in the Humanitarian Designated Classes Regulations made under the Immigration Act,

(2) Subsection (1) applies in respect of overpayments deemed to arise during months that are after June 2001.

110. (1) The portion of the description of B in subsection 122.61(1) of the Act before paragraph (a) is replaced by the following:


is 4% (or where the person is an eligible individual in respect of only one qualified dependant at the beginning of the month, 2%) of the amount, if any, by which

(2) Paragraph (b) of the description of B in subsection 122.61(1) of the Act is replaced by the following:

(b) the greater of $32,000 and the dollar amount, as adjusted annually and referred to in paragraph 117(2)(a), that is used for the calendar year following the base taxation year; and

(3) Paragraphs (a) and (b) of the description of F in subsection 122.61(1) of the Act are replaced by the following:

(a) only one qualified dependant, $1,255, and

(b) two or more qualified dependants, the total of

(i) $1,255 for the first qualified dependant,

(ii) $1055 for the second qualified dependant, and

(iii) $980 for each of the third and subsequent qualified dependants,

(4) Subsection 122.61(6.1) of the Act is replaced by the following:

Marginal note:Agreement with a province

(6.1) Notwithstanding subsection (5), for the purposes of any agreement referred to in section 122.63 with respect to overpayments deemed to arise during months that are after June 2001 and before July 2002, the amount determined under subparagraph (5)(b)(ii) for a month referred to in paragraph (6)(b) is deemed to be 0.012.

(5) Subsection (1) applies with respect to overpayments deemed to arise during months that are after June 2004.

(6) Subsections (2) and (3) apply with respect to overpayments deemed to arise during months that are after June 2001.

(7) Subsection (4) applies in respect of overpayments deemed to arise during months that are after June 2001 and before July 2002.

111. (1) Paragraph 123.2(a) of the Act is replaced by the following:

(a) the tax payable under this Part by the corporation for the year determined without reference to this section, sections 123.3, 123.4 and 125 to 126 and subsections 127(3), (5), (27) to (31), (34) and (35) and 137(3) and as if subsection 124(1) did not contain the words “in a province”

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

112. (1) The Act is amended by adding the following after section 123.3:

Corporation Tax Reductions

Marginal note:Definitions

123.4 (1) The definitions in this subsection apply in this section.

“CCPC rate reduction percentage”

« pourcentage de réduction du taux des SPCC »

“CCPC rate reduction percentage” of a Canadian-controlled private corporation for a taxation year is that proportion of 7% that the number of days in the year that are after 2000 is of the number of days in the year.

“full rate taxable income”

« revenu imposable au taux complet »

“full rate taxable income” of a corporation for a taxation year is

(a) if the corporation is not a corporation described in paragraph (b) or (c) for the year, the amount by which the corporation’s taxable income for the year exceeds the total of

(i) if an amount is deducted under subsection 125.1(1) from the corporation’s tax otherwise payable under this Part for the year, 100/7 of the amount deducted,

(ii) if an amount is deducted under subsection 125.1(2) from the corporation’s tax otherwise payable under this Part for the year, the amount determined, in respect of the deduction, by the formula in that subsection,

(iii) three times the total of all amounts each of which is deducted under paragraph 20(1)(v.1) in computing the corporation’s income from a business or property for the year, and

(iv) if the corporation is a credit union throughout the year, 100/16 of the amount, if any, deducted under subsection 137(3) from the corporation’s tax otherwise payable under this Part for the year;

(b) if the corporation is a Canadian-controlled private corporation throughout the year, the amount by which the corporation’s taxable income for the year exceeds the total of

(i) the amounts that would, if paragraph (a) applied to the corporation, be determined under subparagraphs (a)(i) to (iv) in respect of the corporation for the year,

(ii) 100/16 of the amount, if any, deducted under subsection 125(1) from the corporation’s tax otherwise payable under this Part for the year,

(iii) the corporation’s aggregate investment income for the year, within the meaning assigned by subsection 129(4), and

(iv) 100/7 of the amount, if any, deducted under subsection (3) from the corporation’s tax otherwise payable under this Part for the year; and

(c) if the corporation is throughout the year an investment corporation, a mortgage investment corporation, a mutual fund corporation, or a non-resident-owned investment corporation, nil.

“general rate reduction percentage”

« pourcentage de réduction du taux général »

“general rate reduction percentage” of a corporation for a taxation year is the total of

(a) that proportion of 1% that the number of days in the year that are in 2001 is of the number of days in the year;

(b) that proportion of 3% that the number of days in the year that are in 2002 is of the number of days in the year;

(c) that proportion of 5% that the number of days in the year that are in 2003 is of the number of days in the year; and

(d) that proportion of 7% that the number of days in the year that are after 2003 is of the number of days in the year.

Marginal note:General deduction from tax

(2) There may be deducted from a corporation’s tax otherwise payable under this Part for a taxation year the product obtained by multiplying the corporation’s general rate reduction percentage for the year by the corporation’s full-rate taxable income for the year.

Marginal note:CCPC deduction

(3) There may be deducted from the tax otherwise payable under this Part for a taxation year by a Canadian-controlled private corporation the product obtained by multiplying the corporation’s CCPC rate reduction percentage for the year by the amount by which the least of

(a) 3/2 of the corporation’s business limit for the year, as determined under section 125 for the purpose of paragraph 125(1)(c),

(b) the amount that would be determined under paragraph 125(1)(a) in respect of the corporation for the year if the references in the description of M in the definition “specified partnership income” in subsection 125(7) to “$200,000” and “$548” were read as references to “$300,000” and “$822”, respectively, and

(c) the amount by which

(i) the amount that would, if subsection 126(1) did not apply in respect of any amount included in the corporation’s aggregate investment income for the year (determined under subsection 129(4)), be determined under paragraph 125(1)(b) in respect of the corporation for the year

exceeds

(ii) the corporation’s aggregate investment income for the year,

exceeds the total of

(d) the amounts that would, if paragraph (a) of the definition “full-rate taxable income” in subsection (1) applied to the corporation for the year, be determined under subparagraphs (a)(i) to (iv) of that definition in respect of the corporation for the year, and

(e) 100/16 of the amount, if any, deducted under subsection 125(1) from the corporation’s tax otherwise payable under this Part for the year.

(2) Subsection (1) applies to the 2001 and subsequent taxation years except that, in its application to a taxation year that begins before 2001, the amount determined under subparagraph (b)(iv) of the definition “full rate taxable income” in subsection 123.4(1) of the Act, as enacted by subsection (1), is deemed to be the amount otherwise so determined multiplied by the number obtained by dividing the number of days in the year by the number of days in the year that are after 2000.

113. (1) The portion of paragraph 125(1)(b) of the Act before subparagraph (iii) is replaced by the following:

(b) the amount, if any, by which the corporation’s taxable income for the year exceeds the total of

(i) 10/3 of the total of the amounts that would be deductible under subsection 126(1) from the tax for the year otherwise payable under this Part by it if those amounts were determined without reference to sections 123.3 and 123.4,

(ii) 10/4 of the total of the amounts that would be deductible under subsection 126(2) from the tax for the year otherwise payable under this Part by it if those amounts were determined without reference to section 123.4, and

(2) The definition “Canadian-controlled private corporation” in subsection 125(7) of the Act is replaced by the following:

“Canadian-controlled private corporation”

« société privée sous contrôle canadien »

“Canadian-controlled private corporation” means a private corporation that is a Canadian corporation other than

(a) a corporation controlled, directly or indirectly in any manner whatever, by one or more non-resident persons, by one or more public corporations (other than a prescribed venture capital corporation), by one or more corporations described in paragraph (c), or by any combination of them,

(b) a corporation that would, if each share of the capital stock of a corporation that is owned by a non-resident person, by a public corporation (other than a prescribed venture capital corporation), or by a corporation described in paragraph (c) were owned by a particular person, be controlled by the particular person, or

(c) a corporation a class of the shares of the capital stock of which is listed on a prescribed stock exchange;

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

(4) Subsection (2) applies to taxation years that begin after 1999.

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

(ii) 10/4 of the total of the amounts that would be deductible under subsection 126(2) from the tax for the year otherwise payable under this Part by the corporation if those amounts were determined without reference to section 123.4, and

(2) The portion of subsection 125.1(2) of the Act before the formula is replaced by the following:

Marginal note:Electrical energy and steam

(2) A corporation that generates electrical energy for sale, or produces steam for sale, in a taxation year may deduct from its tax otherwise payable under this Part for the year 7% of the amount determined by the formula

(3) Paragraphs 125.1(5)(a) and (b) of the Act are replaced by the following:

(a) electrical energy and steam are deemed to be goods; and

(b) the generation of electrical energy for sale, and the production of steam for sale, are deemed to be, subject to paragraph (l) of the definition “manufacturing or processing” in subsection (3), manufacturing or processing.

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

(5) Subsections (2) and (3) apply to taxation years that end after 1999 except that, in its application to such a taxation year that begins before 2002, the reference to “7%” in subsection 125.1(2) of the Act, as enacted by subsection (2), shall be read as a reference to the total of

(a) 0% multiplied by the number of days in the year that are before 1999,

(b) in the case of a corporation that in 1999 generated electrical energy for sale, or produced steam for use in the generation of electrical energy for sale, that proportion of 1% that the number of days in the taxation year that are in the 1999 calendar year is of the number of days in the taxation year,

(c) in the case of a corporation to which paragraph (b) does not apply, 0% multiplied by the number of days in the taxation year that are in the 1999 calendar year,

(d) that proportion of 3% that the number of days in the taxation year that are in the 2000 calendar year is of the number of days in the taxation year,

(e) that proportion of 5% that the number of days in the taxation year that are in the 2001 calendar year is of the number of days in the taxation year,

(f) that proportion of 7% that the number of days in the taxation year that are in the 2002 calendar year is of the number of days in the taxation year, and

(g) that proportion of 7% that the number of days in the taxation year that are in the 2003 calendar year is of the number of days in the taxation year.

115. (1) Subsection 125.4(2) 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) that definition does not apply to an amount to which section 37 applies.

(2) Subsection (1) applies after November 1999.

116. (1) The portion of the definition “eligible production corporation” in subsection 125.5(1) of the Act after paragraph (b) and before paragraph (c) is replaced by the following:

except a corporation that is, at any time in the year,

(2) Subsection (1) applies after November 1999.

117. (1) Clause 126(1)(b)(ii)(A) of the Act is replaced by the following:

(A) the amount, if any, by which,

(I) if the taxpayer was resident in Canada throughout the year, the taxpayer’s income for the year computed without reference to paragraph 20(1)(ww), and

(II) if the taxpayer was non-resident at any time in the year, the amount determined under paragraph 114(a) in respect of the taxpayer for the year

exceeds

(III) the total of all amounts each of which is an amount deducted under section 110.6 or paragraph 111(1)(b), or deductible under any of paragraphs 110(1)(d) to (d.3), (f) and (j) and sections 112 and 113, in computing the taxpayer’s taxable income for the year, and

(2) Section 126 of the Act is amended by adding the following after subsection (1):

Marginal note:Authorized foreign bank

(1.1) In applying subsections 20(12) and (12.1) and this section in respect of an authorized foreign bank,

(a) the bank is deemed, for the purposes of subsections (1), (4) to (5), (6) and (7), to be resident in Canada in respect of its Canadian banking business;

(b) the references in subsection 20(12) and paragraph (1)(a) to “country other than Canada” shall be read as a reference to “country that is neither Canada nor a country in which the taxpayer is resident at any time in the taxation year”;

(c) the reference in subparagraph (1)(b)(i) to “from sources in that country” shall be read as a reference to “in respect of its Canadian banking business from sources in that country”;

(d) subparagraph (1)(b)(ii) shall be read as follows:

“(ii) the lesser of

(A) the taxpayer’s taxable income earned in Canada for the year, and

(B) the total of the taxpayer’s income for the year from its Canadian banking business and the amount determined in respect of the taxpayer under subparagraph 115(1)(a)(vii) for the year.”;

(e) in computing the non-business income tax paid by the bank for a taxation year to the government of a country other than Canada, there shall be included only taxes that relate to amounts that are included in computing the bank’s taxable income earned in Canada from its Canadian banking business; and

(f) the definition “tax-exempt income” in subsection (7) shall be read as follows:

“tax-exempt income”

““tax-exempt income” means income of a taxpayer from a source in a particular country in respect of which

(a) the taxpayer is, because of a comprehensive agreement or convention for the elimination of double taxation on income, which has the force of law in the particular country and to which a country in which the taxpayer is resident is a party, entitled to an exemption from all income or profits taxes, imposed in the particular country, to which the agreement or convention applies, and

(b) no income or profits tax to which the agreement or convention does not apply is imposed in the particular country;”.

(3) Clause 126(2.1)(a)(ii)(A) of the Act is replaced by the following:

(A) the amount, if any, by which

(I) if the taxpayer is resident in Canada throughout the year, the taxpayer’s income for the year computed without reference to paragraph 20(1)(ww), and

(II) if the taxpayer is non-resident at any time in the year, the amount determined under paragraph 114(a) in respect of the taxpayer for the year

exceeds

(III) the total of all amounts each of which is an amount deducted under section 110.6 or paragraph 111(1)(b), or deductible under any of paragraphs 110(1)(d) to (d.3), (f) and (j) and sections 112 and 113, in computing the taxpayer’s taxable income for the year, and

(4) The portion of subsection 126(2.2) of the Act before paragraph (b) is replaced by the following:

Marginal note:Non-resident’s foreign tax deduction

(2.2) If at any time in a taxation year a taxpayer who is not at that time resident in Canada disposes of a property that was deemed by subsection 48(2), as it read in its application before 1993, or by paragraph 128.1(4)(e), as it read in its application before October 2, 1996, to be taxable Canadian property of the taxpayer, the taxpayer may deduct from the tax for the year otherwise payable under this Part by the taxpayer an amount equal to the lesser of

(a) the amount of any non-business-income tax paid by the taxpayer for the year to the government of a country other than Canada that can reasonably be regarded as having been paid by the taxpayer in respect of any gain or profit from the disposition of the property, and

(5) Subparagraph 126(2.2)(b)(ii) of the Act is replaced by the following:

(ii) if the taxpayer is non-resident throughout the year, the taxpayer’s taxable income earned in Canada for the year determined without reference to paragraphs 115(1)(d) to (f), and

(iii) if the taxpayer is resident in Canada at any time in the year, the amount that would have been the taxpayer’s taxable income earned in Canada for the year if the part of the year throughout which the taxpayer was non-resident were the whole taxation year.

(6) Section 126 of the Act is amended by adding the following after subsection (2.2):

Marginal note:Former resident — deduction

(2.21) If at any particular time in a particular taxation year a non-resident individual disposes of a property that the individual last acquired because of the application, at any time (in this subsection referred to as the “acquisition time”) after October 1, 1996, of paragraph 128.1(4)(c), there may be deducted from the individual’s tax otherwise payable under this Part for the year (in this subsection referred to as the “emigration year”) that includes the time immediately before the acquisition time an amount not exceeding the lesser of

(a) the total of all amounts each of which is the amount of any business-income tax or non-business-income tax paid by the individual for the particular year

(i) where the property is real property situated in a country other than Canada,

(A) to the government of that country, or

(B) to the government of a country with which Canada has a tax treaty at the particular time and in which the individual is resident at the particular time, or

(ii) where the property is not real property, to the government of a country with which Canada has a tax treaty at the particular time and in which the individual is resident at the particular time,

that can reasonably be regarded as having been paid in respect of that portion of any gain or profit from the disposition of the property that accrued while the individual was resident in Canada and before the time the individual last ceased to be resident in Canada, and

(b) the amount, if any, by which

(i) the amount of tax under this Part that was, after taking into account the application of this subsection in respect of dispositions that occurred before the particular time, otherwise payable by the individual for the emigration year

exceeds

(ii) the amount of such tax that would have been payable if the property had not been deemed by subsection 128.1(4) to have been disposed of in the emigration year.

Marginal note:Former resident — trust beneficiary

(2.22) If at any particular time in a particular taxation year a non-resident individual disposes of a property that the individual last acquired at any time (in this subsection referred to as the “acquisition time”) on a distribution after October 1, 1996 to which paragraphs 107(2)(a) to (c) do not apply only because of subsection 107(5), the trust may deduct from its tax otherwise payable under this Part for the year (in this subsection referred to as the “distribution year”) that includes the acquisition time an amount not exceeding the lesser of

(a) the total of all amounts each of which is the amount of any business-income tax or non-business-income tax paid by the individual for the particular year

(i) where the property is real property situated in a country other than Canada,

(A) to the government of that country, or

(B) to the government of a country with which Canada has a tax treaty at the particular time and in which the individual is resident at the particular time, or

(ii) where the property is not real property, to the government of a country with which Canada has a tax treaty at the particular time and in which the individual is resident at the particular time,

that can reasonably be regarded as having been paid in respect of that portion of any gain or profit from the disposition of the property that accrued before the distribution and after the latest of the times, before the distribution, at which

(iii) the trust became resident in Canada,

(iv) the individual became a beneficiary under the trust, or

(v) the trust acquired the property, and

(b) the amount, if any, by which

(i) the amount of tax under this Part that was, after taking into account the application of this subsection in respect of dispositions that occurred before the particular time, otherwise payable by the trust for the distribution year

exceeds

(ii) the amount of such tax that would have been payable by the trust for the distribution year if the property had not been distributed to the individual.

Marginal note:Where foreign credit available

(2.23) For the purposes of subsections (2.21) and (2.22), in computing, in respect of the disposition of a property by an individual in a taxation year, the total amount of taxes paid by the individual for the year to one or more governments of countries other than Canada, there shall be deducted any tax credit (or other reduction in the amount of a tax) to which the individual was entitled for the year, under the law of any of those countries or under a tax treaty between Canada and any of those countries, because of taxes paid or payable by the individual under this Act in respect of the disposition or a previous disposition of the property.

(7) Paragraphs 126(2.3)(b) and (c) of the Act are replaced by the following:

(b) no amount may be claimed under paragraph (2)(a) in computing a taxpayer’s tax payable under this Part for a particular taxation year in respect of the taxpayer’s unused foreign tax credit in respect of a country for a taxation year until the taxpayer’s unused foreign tax credits in respect of that country for taxation years preceding the taxation year that may be claimed for the particular taxation year have been claimed; and

(c) an amount in respect of a taxpayer’s unused foreign tax credit in respect of a country for a taxation year may be claimed under paragraph (2)(a) in computing the taxpayer’s tax payable under this Part for a particular taxation year only to the extent that it exceeds the aggregate of all amounts each of which is the amount that may reasonably be considered to have been claimed in respect of that unused foreign tax credit in computing the taxpayer’s tax payable under this Part for a taxation year preceding the particular taxation year.

(8) Subparagraphs 126(3)(a)(i) and (ii) of the Act are replaced by the following:

(i) for the year, if the individual is resident in Canada throughout the year, and

(ii) for the part of the year throughout which the individual was resident in Canada, if the individual is non-resident at any time in the year,

(9) Paragraph 126(3)(b) of the Act is replaced by the following:

(b) the amount, if any, by which

(i) if the taxpayer is resident in Canada throughout the year, the taxpayer’s income for the year computed without reference to paragraph 20(1)(ww), and

(ii) if the taxpayer is non-resident at any time in the year, the amount determined under paragraph 114(a) in respect of the taxpayer for the year

exceeds

(iii) the total of all amounts each of which is an amount deducted under section 110.6 or paragraph 111(1)(b), or deductible under any of paragraphs 110(1)(d) to (d.3), (f) and (j), in computing the taxpayer’s taxable income for the year, and

(10) Subsections 126(4) and (4.1) of the Act are replaced by the following:

Marginal note:Portion of foreign tax not included

(4) For the purposes of this Act, an income or profits tax paid by a person resident in Canada to the government of a country other than Canada does not include a tax, or that portion of a tax, imposed by that government that would not be imposed if the person were not entitled under section 113 or this section to a deduction in respect of the tax or that portion of the tax.

Marginal note:No economic profit

(4.1) If a taxpayer acquires a property, other than a capital property, at any time after February 23, 1998 and it is reasonable to expect at that time that the taxpayer will not realize an economic profit in respect of the property for the period that begins at that time and ends when the taxpayer next disposes of the property, the total amount of all income or profits taxes (referred to as the “foreign tax” for the purpose of subsection 20(12.1)) in respect of the property for the period, and in respect of related transactions, paid by the taxpayer for any year to the government of any country other than Canada, is not included in computing the taxpayer’s business-income tax or non-business-income tax for any taxation year.

(11) Paragraph 126(4.4)(a) of the Act is replaced by the following:

(a) a disposition or acquisition of property deemed to be made by subsection 10(12) or (13), 14(14) or (15) or 45(1), section 70 or 128.1, paragraph 132.2(1)(f), subsection 138(11.3), 142.5(2) or 142.6(1.1) or (1.2), paragraph 142.6(1)(b) or subsection 149(10) is not a disposition or acquisition, as the case may be; and

(12) Subsection 126(5) of the Act is replaced by the following:

Marginal note:Foreign oil and gas levies

(5) A taxpayer who is resident in Canada throughout a taxation year and carries on a foreign oil and gas business in a taxing country in the year is deemed for the purposes of this section to have paid in the year as an income or profits tax to the government of the taxing country an amount equal to the lesser of

(a) the amount, if any, by which

(i) 40% of the taxpayer’s income from the business in the taxing country for the year

exceeds

(ii) the total of all amounts that would, but for this subsection, be income or profits taxes paid in the year in respect of the business to the government of the taxing country, and

(b) the taxpayer’s production tax amount for the business in the taxing country for the year.

(13) Subsection 126(6) of the Act is replaced by the following:

Marginal note:Rules of construction

(6) For the purposes of this section,

(a) the government of a country other than Canada includes the government of a state, province or other political subdivision of that country;

(b) where a taxpayer’s income for a taxation year is in whole or in part from sources in more than one country other than Canada, subsections (1) and (2) shall be read as providing for separate deductions in respect of each of the countries other than Canada; and

(c) if any income from a source in a particular country would be tax-exempt income but for the fact that a portion of the income is subject to an income or profits tax imposed by the government of a country other than Canada, the portion is deemed to be income from a separate source in the particular country.

(14) The definitions “qualifying incomes” and “qualifying losses” in subsection 126(7) of the Act are replaced by the following:

“qualifying incomes”

« revenus admissibles »

“qualifying incomes” of a taxpayer from sources in a country means incomes from sources in the country, determined in accordance with subsection (9);

“qualifying losses”

« pertes admissibles »

“qualifying losses” of a taxpayer from sources in a country means losses from sources in the country, determined in accordance with subsection (9);

(15) The definitions “tax for the year otherwise payable under this Part” and “unused foreign tax credit” in subsection 126(7) of the Act are replaced by the following:

“tax for the year otherwise payable under this Part”

« impôt payable par ailleurs pour l’année en vertu de la présente partie »

“tax for the year otherwise payable under this Part” by a taxpayer means

(a) in paragraph (1)(b) and subsection (3), the amount determined by the formula

A – B

where


is the amount that would be the tax payable under this Part for the year by the taxpayer if that tax were determined without reference to section 120.3 and before making any deduction under any of sections 121, 122.3, 125 to 127.41 and, if the taxpayer is a Canadian-controlled private corporation throughout the year, section 123.4, and


is the amounts deemed by subsections 120(2) and (2.2) to have been paid on account of tax payable under this Part by the taxpayer,

(b) in subparagraph (2)(c)(i) and paragraph (2.2)(b), the amount that would be the tax payable under this Part for the year by the taxpayer if that tax were determined without reference to sections 120.3 and 123.3 and before making any deduction under any of sections 121 and 122.3, subsection 123.4(3), and sections 124 to 127.41, and

(c) in subsection (2.1), the amount that would be the tax payable under this Part for the year by the taxpayer if that tax were determined without reference to subsection 120(1) and sections 120.3 and 123.3 and before making any deduction under any of sections 121 and 122.3, subsection 123.4(3) and sections 124 to 127.41;

“unused foreign tax credit”

« fraction inutilisée du crédit pour impôt étranger »

“unused foreign tax credit” of a taxpayer in respect of a country for a taxation year means the amount, if any, by which

(a) the business-income tax paid by the taxpayer for the year in respect of businesses carried on by the taxpayer in that country

exceeds

(b) the amount, if any, deductible under subsection (2) in respect of that country in computing the taxpayer’s tax payable under this Part for the year.

(16) The portion of the definition “business-income tax” in subsection 126(7) of the Act before paragraph (a) is replaced by the following:

“business-income tax”

« impôt sur le revenu tiré d’une entreprise »

“business-income tax” paid by a taxpayer for a taxation year in respect of businesses carried on by the taxpayer in a country other than Canada (in this definition referred to as the “business country”) means, subject to subsections (4.1) and (4.2), the portion of any income or profits tax paid by the taxpayer for the year to the government of a country other than Canada that can reasonably be regarded as tax in respect of the income of the taxpayer from a business carried on by the taxpayer in the business country, but does not include a tax, or the portion of a tax, that can reasonably be regarded as relating to an amount that

(17) Paragraph (b) of the definition “economic profit” in subsection 126(7) of the Act is replaced by the following:

(b) income or profits taxes payable by the taxpayer for any year to the government of a country other than Canada, in respect of the property for the period or in respect of a related transaction, or

(18) The portion of the definition “non-business-income tax” in subsection 126(7) of the Act before paragraph (a) is replaced by the following:

“non-business-income tax”

« impôt sur le revenu ne provenant pas d’une entreprise »

“non-business-income tax” paid by a taxpayer for a taxation year to the government of a country other than Canada means, subject to subsections (4.1) and (4.2), the portion of any income or profits tax paid by the taxpayer for the year to the government of that country that

(19) Subsection 126(7) of the Act is amended by adding the following in alphabetical order:

“commercial obligation”

« obligation commerciale »

“commercial obligation” in respect of a taxpayer’s foreign oil and gas business in a country means an obligation of the taxpayer to a particular person, undertaken in the course of carrying on the business or in contemplation of the business, if the law of the country would have allowed the taxpayer to undertake an obligation, on substantially the same terms, to a person other than the particular person;

“foreign oil and gas business”

« entreprise pétrolière et gazière à l’étranger »

“foreign oil and gas business” of a taxpayer means a business, carried on by the taxpayer in a taxing country, the principal activity of which is the extraction from natural accumulations, or from oil or gas wells, of petroleum, natural gas or related hydrocarbons;

“production tax amount”

« impôt sur la production »

“production tax amount” of a taxpayer for a foreign oil and gas business carried on by the taxpayer in a taxing country for a taxation year means the total of all amounts each of which

(a) became receivable in the year by the government of the country because of an obligation (other than a commercial obligation) of the taxpayer, in respect of the business, to the government or an agent or instrumentality of the government,

(b) is computed by reference to the amount by which

(i) the amount or value of petroleum, natural gas or related hydrocarbons produced or extracted by the taxpayer in the course of carrying on the business in the year

exceeds

(ii) an allowance or other deduction that

(A) is deductible, under the agreement or law that creates the obligation described in paragraph (a), in computing the amount receivable by the government of the country, and

(B) is intended to take into account the taxpayer’s operating and capital costs of that production or extraction, and can reasonably be considered to have that effect,

(c) would not, if this Act were read without reference to subsection (5), be an income or profits tax, and

(d) is not identified as a royalty under the agreement that creates the obligation or under any law of the country;

“taxing country”

« pays taxateur »

“taxing country” means a country (other than Canada) the government of which regularly imposes, in respect of income from businesses carried on in the country, a levy or charge of general application that would, if this Act were read without reference to subsection (5), be an income or profits tax;

(20) Subsection 126(8) of the Act is repealed.

(21) Section 126 of the Act is amended by adding the following after subsection (8):

Marginal note:Computation of qualifying incomes and losses

(9) The qualifying incomes and qualifying losses for a taxation year of a taxpayer from sources in a country shall be determined

(a) without reference to

(i) any portion of income that was deductible under subparagraph 110(1)(f)(i) in computing the taxpayer’s taxable income,

(ii) for the purpose of subparagraph (1)(b)(i), any portion of income in respect of which an amount was deducted under section 110.6 in computing the taxpayer’s income, or

(iii) any income or loss from a source in the country if any income of the taxpayer from the source would be tax-exempt income; and

(b) as if the total of all amounts each of which is that portion of an amount deducted under subsection 66(4), 66.21(4), 66.7(2) or 66.7(2.3) in computing those qualifying incomes and qualifying losses for the year that applies to those sources were the greater of

(i) the total of all amounts each of which is that portion of an amount deducted under subsection 66(4), 66.21(4), 66.7(2) or 66.7(2.3) in computing the taxpayer’s income for the year that applies to those sources, and

(ii) the total of

(A) the portion of the maximum amount that would be deductible under subsection 66(4) in computing the taxpayer’s income for the year that applies to those sources if the amount determined under subparagraph 66(4)(b)(ii) for the taxpayer in respect of the year were equal to the amount, if any, by which the total of

(I) the taxpayer’s foreign resource income (within the meaning assigned by subsection 66.21(1)) for the year in respect of the country, determined as if the taxpayer had claimed the maximum amounts deductible for the year under subsections 66.7(2) and (2.3), and

(II) all amounts each of which would have been an amount included in computing the taxpayer’s income for the year under subsection 59(1) in respect of a disposition of a foreign resource property in respect of the country, determined as if each amount determined under subparagraph 59(1)(b)(ii) were nil,

exceeds

(III) the total of all amounts each of which is a portion of an amount (other than a portion that results in a reduction of the amount otherwise determined under subclause (I)) that applies to those sources and that would be deducted under subsection 66.7(2) in computing the taxpayer’s income for the year if the maximum amounts deductible for the year under that subsection were deducted,

(B) the maximum amount that would be deductible under subsection 66.21(4) in respect of those sources in computing the taxpayer’s income for the year if

(I) the amount deducted under subsection 66(4) in respect of those sources in computing the taxpayer’s income for the year were the amount determined under clause (A),

(II) the amounts deducted under subsections 66.7(2) and (2.3) in respect of those sources in computing the taxpayer’s income for the year were the maximum amounts deductible under those subsections,

(III) for the purposes of the definition “cumulative foreign resource expense” in subsection 66.21(1), the total of the amounts designated under subparagraph 59(1)(b)(ii) for the year in respect of dispositions by the taxpayer of foreign resource properties in respect of the country in the year were the maximum total that could be so designated without any reduction in the maximum amount that would be determined under clause (A) in respect of the taxpayer for the year in respect of the country if no assumption had been made under subclause (A)(II) in respect of designations made under subparagraph 59(1)(b)(ii), and

(IV) the amount determined under paragraph 66.21(4)(b) were nil, and

(C) the total of all amounts each of which is the maximum amount, applicable to one of those sources, that is deductible under subsection 66.7(2) or (2.3) in computing the taxpayer’s income for the year.

(22) Subsections (1), (3), (5), (8) and (9) apply to the 1998 and subsequent taxation years except that, in their application to the 1998 and 1999 taxation years, subclauses 126(1)(b)(ii)(A)(I) and (2.1)(a)(ii)(A)(I) and subparagraph 126(3)(b)(i) of the Act, as enacted by subsections (1), (3) and (9), respectively, shall be read without reference to the expression “computed without reference to paragraph 20(1)(ww)”.

(23) Subsections (2), (10), (11), (13), (16) to (18) and (20) apply after June 27, 1999.

(24) Subsections (4) and (6) apply to the 1996 and subsequent taxation years.

(25) Subsections (7) and (15) apply to the 2001 and subsequent taxation years.

(26) Subsections (12), (14), (19) and (21) apply to taxation years of a taxpayer that begin after the earlier of

(a) December 31, 1999; and

(b) where, for the purposes of this subsection, a date is designated in writing by the taxpayer and the designation 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 receives royal assent, the later of

(i) the date so designated, and

(ii) December 31, 1994.

118. (1) Subparagraph 127(5)(a)(i) of the Act is replaced by the following:

(i) the taxpayer’s investment tax credit at the end of the year in respect of property acquired before the end of the year, of the taxpayer’s flow-through mining expenditure for the year or a preceding taxation year or of the taxpayer’s SR & ED qualified expenditure pool at the end of the year or of a preceding taxation year, and

(2) Clause 127(5)(a)(ii)(A) of the Act is replaced by the following:

(A) the taxpayer’s investment tax credit at the end of the year in respect of property acquired in a subsequent taxation year, of the taxpayer’s flow-through mining expenditure for a subsequent taxation year or of the taxpayer’s SR & ED qualified expenditure pool at the end of a subsequent taxation year to the extent that an investment tax credit was not deductible under this subsection for the subsequent year, and

(3) Paragraph 127(5)(b) of the Act is replaced by the following:

(b) where Division E.1 applies to the taxpayer for the year, the amount, if any, by which

(i) the taxpayer’s tax otherwise payable under this Part for the year

exceeds

(ii) the taxpayer’s minimum amount for the year determined under section 127.51.

(4) Paragraph (a.1) of the definition “investment tax credit” in subsection 127(9) of the Act is replaced by the following:

(a.1) 20% of the amount by which the taxpayer’s SR & ED qualified expenditure pool at the end of the year exceeds the total of all amounts each of which is the super-allowance benefit amount for the year in respect of the taxpayer in respect of a province,

(a.2) where the taxpayer is an individual (other than a trust), 15% of the taxpayer’s flow-through mining expenditures for the year,

(5) Paragraph (c) of the definition “investment tax credit” in subsection 127(9) of the Act is replaced by the following:

(c) the total of all amounts each of which is an amount determined under paragraph (a), (a.1), (a.2) or (b) in respect of the taxpayer for any of the 10 taxation years immediately preceding or the 3 taxation years immediately following the year,

(6) Paragraph (l) of the definition “investment tax credit” in subsection 127(9) of the Act is replaced by the following:

(l) any of the income is exempt income or is exempt from tax under this Part,

(7) Subsection 127(9) of the Act is amended by adding the following in alphabetical order:

“flow-through mining expenditure”

« dépense minière déterminée »

“flow-through mining expenditure” of a taxpayer for a taxation year means an expense deemed by subsection 66(12.61) (or by subsection 66(18) as a consequence of the application of subsection 66(12.61) to the partnership, referred to in paragraph (c) of this definition, of which the taxpayer is a member) to be incurred by the taxpayer in the year

(a) that is a Canadian exploration expense incurred after October 17, 2000 and before 2004 by a corporation in conducting mining exploration activity from or above the surface of the earth for the purpose of determining the existence, location, extent or quality of a mineral resource described in paragraph (a) or (d) of the definition “mineral resource” in subsection 248(1),

(b) that

(i) is an expense described in paragraph (f) of the definition “Canadian exploration expense” in subsection 66.1(6), and

(ii) is not an expense in respect of

(A) trenching, if one of the purposes of the trenching is to carry out preliminary sampling (other than specified sampling),

(B) digging test pits (other than digging test pits for the purpose of carrying out specified sampling), and

(C) preliminary sampling (other than specified sampling),

(c) an amount in respect of which is renounced in accordance with subsection 66(12.6) by the corporation to the taxpayer (or a partnership of which the taxpayer is a member) under an agreement described in that subsection and made after October 17, 2000,

(d) that is not an expense that was renounced under subsection 66(12.6) to the corporation (or a partnership of which the corporation is a member), unless that renunciation was under an agreement described in that subsection and made after October 17, 2000, and

(e) that is an expense that would be incurred by the corporation before 2004 if this Act were read without reference to subsection 66(12.66);

“specified sampling”

« échantillonnage déterminé »

“specified sampling” means the collecting and testing of samples in respect of a mineral resource except that specified sampling does not include

(a) the collecting or testing of a sample that, at the time the sample is collected, weighs more than 15 tonnes, and

(b) the collecting or testing of a sample collected at any time in a calendar year in respect of any one mineral resource if the total weight of all such samples collected (by any person or partnership or any combination of persons and partnerships) in the period in the calendar year that is before that time (other than samples each of which weighs less than one tonne) exceeds 1,000 tonnes;

“super-allowance benefit amount”

« avantage relatif à la superdéduction »

“super-allowance benefit amount” for a particular taxation year in respect of a corporation in respect of a province means the amount determined by the formula

(A – B) × C

where


is the total of all amounts each of which is an amount that is or may become deductible by the corporation, in computing income or taxable income relevant in calculating an income tax payable by the corporation under a law of the province for any taxation year, in respect of an expenditure on scientific research and experimental development incurred in the particular year,


is the amount by which the amount of the expenditure exceeds the total of all amounts that would be required by subsections (18) to (20) to reduce the corporation's qualified expenditures otherwise determined under this section if the definitions “government assistance” and “non-government assistance” did not apply to assistance provided under that law, and


is,

(a) where the corporation’s expenditure limit for the particular year is nil, the maximum rate of the province’s income tax that applies for that year to active business income earned in the province by a corporation, and

(b) in any other case, the rate of the province’s income tax for that year that would apply to the corporation if

(i) it were not associated with any other corporation in the year,

(ii) its taxable income for the year were less than $200,000, and

(iii) its taxable income for the year were earned in the province in respect of an active business carried on in the province.

(8) Paragraph 127(10.1)(b) of the Act is replaced by the following:

(b) the amount by which the corporation’s SR & ED qualified expenditure pool at the end of the year exceeds the total of all amounts each of which is the super-allowance benefit amount for the year in respect of the corporation in respect of a province; and

(9) Subsection 127(11.1) of the Act is amended by striking out the word “and” at the end of paragraph (c.1) and adding the following paragraph after paragraph (c.1):

(c.2) the amount of a taxpayer’s flow-through mining expenditure for a taxation year is deemed to be the amount of the taxpayer’s flow-through mining expenditure for the year as otherwise determined less the amount of any government assistance or non-government assistance in respect of expenses included in determining the taxpayer’s flow-through mining expenditure for the year that, at the time of the filing of the taxpayer’s return of income for the year, the taxpayer has received, is entitled to receive or can reasonably be expected to receive; and

(10) Subsections (1), (2) and (9) apply to the 2000 and subsequent taxation years, except that, for the 2000 taxation year, clause 127(5)(a)(ii)(A) of the Act, as enacted by subsection (2), shall be read as follows:

(A) the taxpayer’s investment tax credit at the end of the year in respect of property acquired in a subsequent taxation year, of the taxpayer’s flow-through mining expenditure for a subsequent taxation year or of the taxpayer’s SR & ED qualified expenditure pool at the end of a subsequent taxation year to the extent that an investment tax credit was not deductible under this subsection or subsection 180.1(1.2) for the subsequent year, and

(11) Subsection (3) applies to the 2001 and subsequent taxation years.

(12) Paragraph (a.1) of the definition “investment tax credit” in subsection 127(9) of the Act, as enacted by subsection (4), the definition “super-allowance benefit amount” in subsection 127(9) of the Act, as enacted by subsection (7), and subsection (8) apply to taxation years that begin after February 2000 except that, if a corporation’s first taxation year that begins after February 2000 ends before 2001, those provisions apply to the corporation’s taxation years that begin after 2000.

(13) Paragraph (a.2) of the definition “investment tax credit” in subsection 127(9) of the Act, as enacted by subsection (4), subsection (5) and the definitions “flow-through mining expenditure” and “specified sampling” in subsection 127(9) of the Act, as enacted by subsection (7), apply after October 17, 2000.

(14) Subsection (6) applies to all taxation years.

119. (1) Paragraph 127.52(1)(d) of the Act is replaced by the following:

(d) except in respect of dispositions of property occurring before 1986 or to which section 79 applies,

(i) the references to the fraction applicable to the individual for the year in each of paragraphs 38(a), (b) and (c) and section 41 were read as a reference to “4/5”, other than in the case of a capital gain from a disposition that is the making of a gift of property to a qualified donee, and

(ii) each amount (other than an amount to which subsection 104(21.4) applies) that is designated by a trust for a particular year of the trust in respect of the individual and deemed by subsection 104(21) to be a taxable capital gain for the year of the individual were equal to the amount obtained by the formula

4/5(A × 1/B)

where


is the amount so deemed to be a taxable capital gain for the year of the individual, and


is the fraction in paragraph 38(a) applicable to the trust for the particular year of the trust for which the designation is made;

(2) The portion of paragraph 127.52(1)(e) of the Act before subparagraph (i) is replaced by the following:

(e) the total of all amounts deductible under section 65, 66, 66.1, 66.2, 66.21 or 66.4 or under subsection 29(10) or (12) of the Income Tax Application Rules in computing the individual’s income for the year were the lesser of the amounts otherwise so deductible by the individual for the year and the total of

(3) Subparagraph 127.52(1)(e.1)(ii) of the Act is replaced by the following:

(ii) the total of all amounts each of which is an amount deductible under section 65, 66, 66.1, 66.2, 66.21 or 66.4 or under subsection 29(10) or (12) of the Income Tax Application Rules in computing the individual’s income for the year;

(4) The portion of subparagraph 127.52(1)(g)(ii) of the Act before clause (A) is replaced by the following:

(ii) the total of all amounts each of which is 3/5 of

(5) Paragraph 127.52(1)(h) of the Act is replaced by the following:

(h) the only amounts deductible under sections 110 to 110.7 in computing the individual’s taxable income for the year or taxable income earned in Canada for the year, as the case may be, were

(i) the amounts deducted under any of subsections 110(2), 110.6(2), (2.1), (3) and (12) and 110.7(1),

(ii) the amount deducted under paragraph 110(1)(d), not exceeding the total of

(A) twice the amount deducted under paragraph 110(1)(d.01), and

(B) 2/5 of the amount, if any, by which

(I) the amount deducted under paragraph 110(1)(d)

exceeds

(II) the amount determined under clause (A),

(iii) the amount deducted under paragraph 110(1)(d.01),

(iv) 2/5 of the amounts deducted under any of paragraphs 110(1)(d.1) to (d.3), and

(v) the amount that would be deductible under paragraph 110(1)(f) if paragraph (d) were applicable in computing the individual’s income for the year;

(6) Subsections (1), (4) and (5) apply to the 2000 and subsequent taxation years except that, for the 2000 taxation year, clause 127.52(1)(h)(ii)(A) of the Act, as enacted by subsection (5), shall be read as follows:

(A) the total of

(I) twice the amount deducted under paragraph 110(1)(d.01) in respect of benefits that the individual is deemed by paragraph 7(1)(a) to have received in the year as a result of transactions, events or circumstances that occur after October 17, 2000, and

(II) the amount deducted under paragraph 110(1)(d.01) in respect of benefits that the individual is deemed by paragraph 7(1)(a) to have received in the year as a result of transactions, events or circumstances that occur before October 18, 2000, and

(7) Subsections (2) and (3) apply to taxation years that begin after 2000.

120. (1) Subparagraph 127.54(2)(b)(ii) of the Act is replaced by the following:

(ii) 16% of the individual’s foreign income for the year.

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

121. (1) Paragraph 127.55(b) of the Act is repealed.

(2) Subsection (1) applies to the 1996 and subsequent taxation years.

122. (1) Clause 128(2)(e)(ii)(A) of the Act is replaced by the following:

(A) an amount under any of paragraphs 110(1)(d) to (d.3) and section 110.6 to the extent that the amount is in respect of an amount included in income under subparagraph (i) for that taxation year, and

(2) Subparagraph 128(2)(f)(iii) of the Act is replaced by the following:

(iii) in computing the individual’s taxable income for the year, no amount were deductible under any of paragraphs 110(1)(d) to (d.3) and section 110.6 in respect of an amount included in income under subparagraph (e)(i), and no amount were deductible under section 111, and

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

123. (1) Subparagraph 128.1(1)(b)(i) of the Act is replaced by the following:

(i) property that is a taxable Canadian property,

(2) Paragraph 128.1(1)(b) of the Act is amended by adding the word “and” at the end of subparagraph (iii) and by replacing subparagraphs (iv) and (v) with the following:

(iv) an excluded right or interest of the taxpayer (other than an interest in a non-resident testamentary trust that was never acquired for consideration),

(3) Paragraph 128.1(4)(b) of the Act is replaced by the following:

Marginal note:Fiscal period

(a.1) if the taxpayer is an individual (other than a trust) and carries on a business at the particular time, otherwise than through a permanent establishment (as defined by regulation) in Canada,

(i) the fiscal period of the business is deemed to have ended immediately before the particular time and a new fiscal period of the business is deemed to have begun at the particular time, and

(ii) for the purpose of determining the fiscal period of the business after the particular time, the taxpayer is deemed not to have established a fiscal period of the business before the particular time;

Marginal note:Deemed disposition

(b) the taxpayer is deemed to have disposed, at the time (in this paragraph and paragraph (d) referred to as the “time of disposition”) that is immediately before the time that is immediately before the particular time, of each property owned by the taxpayer other than, if the taxpayer is an individual,

(i) real property situated in Canada, a Canadian resource property or a timber resource property,

(ii) capital property used in, eligible capital property in respect of or property described in the inventory of, a business carried on by the taxpayer through a permanent establishment (as defined by regulation) in Canada at the particular time,

(iii) an excluded right or interest of the taxpayer,

(iv) if the taxpayer is not a trust and was not, during the 120-month period that ends at the particular time, resident in Canada for more than 60 months, property that was owned by the taxpayer at the time the taxpayer last became resident in Canada or that was acquired by the taxpayer by inheritance or bequest after the taxpayer last became resident in Canada, and

(v) any property in respect of which the taxpayer elects under paragraph (6)(a) for the taxation year that includes the first time, after the particular time, at which the taxpayer becomes resident in Canada,

for proceeds equal to its fair market value at the time of disposition, which proceeds are deemed to have become receivable and to have been received by the taxpayer at the time of disposition;

(4) Paragraphs 128.1(4)(d) to (f) of the Act are replaced by the following:

Marginal note:Individual — elective disposition

(d) notwithstanding paragraphs (b) to (c), if the taxpayer is an individual (other than a trust) and so elects in prescribed form and manner in respect of a property described in subparagraph (b)(i) or (ii),

(i) the taxpayer is deemed to have disposed of the property at the time of disposition for proceeds equal to its fair market value at that time and to have reacquired the property at the particular time at a cost equal to those proceeds,

(ii) the taxpayer’s income for the taxation year that includes the particular time is deemed to be the greater of

(A) that income determined without reference to this subparagraph, and

(B) the lesser of

(I) that income determined without reference to this subsection, and

(II) that income determined without reference to subparagraph (i), and

(iii) each of the taxpayer’s non-capital loss, net capital loss, restricted farm loss, farm loss and limited partnership loss for the taxation year that includes the particular time is deemed to be the lesser of

(A) that amount determined without reference to this subparagraph, and

(B) the greater of

(I) that amount determined without reference to this subsection, and

(II) that amount determined without reference to subparagraph (i); and

Marginal note:Employee CCPC stock option shares

(d.1) if the taxpayer is deemed by paragraph (b) to have disposed of a share that was acquired before February 28, 2000 under circumstances to which subsection 7(1.1) applied, there shall be deducted from the taxpayer’s proceeds of disposition the amount that would, if section 7 were read without reference to subsection 7(1.6), be added under paragraph 53(1)(j) in computing the adjusted cost base to the taxpayer of the share as a consequence of the deemed disposition.

(5) Section 128.1 of the Act is amended by adding the following after subsection (4):

Marginal note:Instalment interest

(5) If an individual is deemed by subsection (4) to have disposed of a property in a taxation year, in applying sections 155 and 156 and subsections 156.1(1) to (3) and 161(2), (4) and (4.01) and any regulations made for the purposes of those provisions, the individual’s total taxes payable under this Part and Part I.1 for the year are deemed to be the lesser of

(a) the individual’s total taxes payable under this Part and Part I.1 for the year, determined before taking into consideration the specified future tax consequences for the year, and

(b) the amount that would be determined under paragraph (a) if subsection (4) did not apply to the individual for the year.

Marginal note:Returning former resident

(6) If an individual (other than a trust) becomes resident in Canada at a particular time in a taxation year and the last time (in this subsection referred to as the “emigration time”), before the particular time, at which the individual ceased to be resident in Canada was after October 1, 1996,

(a) subject to paragraph (b), if the individual so elects in writing and files the election with the Minister on or before the individual’s filing-due date for the year, paragraphs (4)(b) and (c) do not apply to the individual’s cessation of residence at the emigration time in respect of all properties that were taxable Canadian properties of the individual throughout the period that began at the emigration time and that ends at the particular time;

(b) where, if a property in respect of which an election under paragraph (a) is made had been acquired by the individual at the emigration time at a cost equal to its fair market value at the emigration time and had been disposed of by the individual immediately before the particular time for proceeds of disposition equal to its fair market value immediately before the particular time, the application of subsection 40(3.7) would reduce the amount that would, but for that subsection and this subsection, be the individual’s loss from the disposition,

(i) the individual is deemed to have disposed of the property at the time of disposition (within the meaning assigned by paragraph (4)(b)) in respect of the emigration time for proceeds of disposition equal to the total of

(A) the adjusted cost base to the individual of the property immediately before the time of disposition, and

(B) the amount, if any, by which that reduction exceeds the lesser of

(I) the adjusted cost base to the individual of the property immediately before the time of disposition, and

(II) the amount, if any, that the individual specifies for the purposes of this paragraph in the election under paragraph (a) in respect of the property,

(ii) the individual is deemed to have reacquired the property at the emigration time at a cost equal to the amount, if any, by which the amount determined under clause (i)(A) exceeds the lesser of that reduction and the amount specified by the individual under subclause (i)(B)(II), and

(iii) for the purpose of section 119, the individual is deemed to have disposed of the property immediately before the particular time;

(c) if the individual so elects in writing and files the election with the Minister on or before the individual’s filing-due date for the year, in respect of each property that the individual owned throughout the period that began at the emigration time and that ends at the particular time and that is deemed by paragraph (1)(b) to have been disposed of because the individual became resident in Canada, notwithstanding paragraphs (1)(c) and (4)(b) the individual’s proceeds of disposition at the time of disposition (within the meaning assigned by paragraph (4)(b)), and the individual’s cost of acquiring the property at the particular time, are deemed to be those proceeds and that cost, determined without reference to this paragraph, minus the least of

(i) the amount that would, but for this paragraph, have been the individual’s gain from the disposition of the property deemed by paragraph (4)(b) to have occurred,

(ii) the fair market value of the property at the particular time, and

(iii) the amount that the individual specifies for the purposes of this paragraph in the election; and

(d) notwithstanding subsections 152(4) to (5), any assessment of tax that is payable under this Act by the individual for any taxation year that is before the year that includes the particular time and that is not before the year that includes the emigration time shall be made that is necessary to take an election under this subsection into account, except that no such assessment shall affect the computation of

(i) interest payable under this Act to or by a taxpayer in respect of any period that is before the day on which the taxpayer’s return of income for the taxation year that includes the particular time is filed, or

(ii) any penalty payable under this Act.

Marginal note:Returning trust beneficiary

(7) If an individual (other than a trust)

(a) becomes resident in Canada at a particular time in a taxation year,

(b) owns at the particular time a property that the individual last acquired on a trust distribution to which subsection 107(2) would, but for subsection 107(5), have applied and at a time (in this subsection referred to as the “distribution time”) that was after October 1, 1996 and before the particular time, and

(c) was a beneficiary of the trust at the last time, before the particular time, at which the individual ceased to be resident in Canada,

the following rules apply:

(d) subject to paragraphs (e) and (f), if the individual and the trust jointly so elect in writing and file the election with the Minister on or before the earlier of their filing-due dates for their taxation years that include the particular time, subsection 107(2.1) does not apply to the distribution in respect of all properties acquired by the individual on the distribution that were taxable Canadian properties of the individual throughout the period that began at the distribution time and that ends at the particular time,

(e) paragraph (f) applies in respect of the individual, the trust and a property in respect of which an election under paragraph (d) is made where, if the individual

(i) had been resident in Canada at the distribution time,

(ii) had acquired the property at the distribution time at a cost equal to its fair market value at that time,

(iii) had ceased to be resident in Canada immediately after the distribution time, and

(iv) had, immediately before the particular time, disposed of the property for proceeds of disposition equal to its fair market value immediately before the particular time,

the application of subsection 40(3.7) would reduce the amount that would, but for that subsection and this subsection, have been the individual’s loss from the disposition,

(f) where this paragraph applies in respect of an individual, a trust and a property,

(i) notwithstanding paragraph 107(2.1)(a), the trust is deemed to have disposed of the property at the distribution time for proceeds of disposition equal to the total of

(A) the cost amount to the trust of the property immediately before the distribution time, and

(B) the amount, if any, by which the reduction under subsection 40(3.7) described in paragraph (e) exceeds the lesser of

(I) the cost amount to the trust of the property immediately before the distribution time, and

(II) the amount, if any, which the individual and the trust jointly specify for the purposes of this paragraph in the election under paragraph (d) in respect of the property, and

(ii) notwithstanding paragraph 107(2.1)(b), the individual is deemed to have acquired the property at the distribution time at a cost equal to the amount, if any, by which the amount otherwise determined under paragraph 107(2)(b) exceeds the lesser of the reduction under subsection 40(3.7) described in paragraph (e) and the amount specified under subclause (i)(B)(II),

(g) if the individual and the trust jointly so elect in writing and file the election with the Minister on or before the later of their filing-due dates for their taxation years that include the particular time, in respect of each property that the individual owned throughout the period that began at the distribution time and that ends at the particular time and that is deemed by paragraph (1)(b) to have been disposed of because the individual became resident in Canada, notwithstanding paragraphs 107(2.1)(a) and (b), the trust’s proceeds of disposition under paragraph 107(2.1)(a) at the distribution time, and the individual’s cost of acquiring the property at the particular time, are deemed to be those proceeds and that cost determined without reference to this paragraph, minus the least of

(i) the amount that would, but for this paragraph, have been the trust’s gain from the disposition of the property deemed by paragraph 107(2.1)(a) to have occurred,

(ii) the fair market value of the property at the particular time, and

(iii) the amount that the individual and the trust jointly specify for the purposes of this paragraph in the election,

(h) if the trust ceases to exist before the individual’s filing-due date for the individual’s taxation year that includes the particular time,

(i) an election or specification described in this subsection may be made by the individual alone in writing if the election is filed with the Minister on or before that filing-due date, and

(ii) if the individual alone makes such an election or specification, the individual and the trust are jointly and severally liable for any amount payable under this Act by the trust as a result of the election or specification, and

(i) notwithstanding subsections 152(4) to (5), such assessment of tax payable under the Act by the trust or the individual for any year that is before the year that includes the particular time and that is not before the year that includes the distribution time shall be made as is necessary to take an election under this subsection into account, except that no such assessment shall affect the computation of

(i) interest payable under this Act to or by the trust or the individual in respect of any period that is before the individual’s filing-due date for the taxation year that includes the particular time, or

(ii) any penalty payable under this Act.

Marginal note:Post-emigration loss

(8) If an individual (other than a trust)

(a) was deemed by paragraph (4)(b) to have disposed of a capital property at any particular time after October 1, 1996,

(b) has disposed of the property at a later time at which the property was a taxable Canadian property of the individual, and

(c) so elects in writing in the individual’s return of income for the taxation year that includes the later time,

there shall, except for the purpose of paragraph (4)(c), be deducted from the individual’s proceeds of disposition of the property at the particular time, and added to the individual’s proceeds of disposition of the property at the later time, an amount equal to the least of

(d) the amount specified in respect of the property in the election,

(e) the amount that would, but for the election, be the individual’s gain from the disposition of the property at the particular time, and

(f) the amount that would be the individual’s loss from the disposition of the property at the later time, if the loss were determined having reference to every other provision of this Act including, for greater certainty, subsection 40(3.7) and section 112, but without reference to the election.

Marginal note:Information reporting

(9) An individual who ceases at a particular time in a taxation year to be resident in Canada, and who owns immediately after the particular time one or more reportable properties the total fair market value of which at the particular time is greater than $25,000, shall file with the Minister in prescribed form, on or before the individual’s filing-due date for the year, a list of all the reportable properties that the individual owned immediately after the particular time.

Marginal note:Definitions

(10) The definitions in this subsection apply in this section.

“excluded right or interest”

« droit, participation ou intérêt exclu »

“excluded right or interest” of a taxpayer who is an individual means

(a) a right of the individual under, or an interest of the individual in a trust governed by,

(i) a registered retirement savings plan or a plan referred to in subsection 146(12) as an “amended plan”,

(ii) a registered retirement income fund,

(iii) a registered education savings plan,

(iv) a deferred profit sharing plan or a plan referred to in subsection 147(15) as a “revoked plan”,

(v) an employees profit sharing plan,

(vi) an employee benefit plan (other than a plan described in subparagraph (b)(i) or (ii)),

(vii) a plan or arrangement (other than an employee benefit plan) under which the individual has a right to receive in a year remuneration in respect of services rendered by the individual in the year or a prior year,

(viii) a superannuation or pension fund or plan (other than an employee benefit plan),

(ix) a retirement compensation arrangement,

(x) a foreign retirement arrangement, or

(xi) a registered supplementary unemployment benefit plan;

(b) a right of the individual to a benefit under an employee benefit plan that is

(i) a plan or arrangement described in paragraph (j) of the definition “salary deferral arrangement” in subsection 248(1) that would, but for paragraphs (j) and (k) of that definition, be a salary deferral arrangement, or

(ii) a plan or arrangement that would, but for paragraph 6801(c) of the Income Tax Regulations, be a salary deferral arrangement,

to the extent that the benefit can reasonably be considered to be attributable to services rendered by the individual in Canada;

(c) a right of the individual under an agreement referred to in subsection 7(1);

(d) a right of the individual to a retiring allowance;

(e) a right of the individual under, or an interest of the individual in, a trust that is

(i) an employee trust,

(ii) an amateur athlete trust,

(iii) a cemetery care trust, or

(iv) a trust governed by an eligible funeral arrangement;

(f) a right of the individual to receive a payment under

(i) an annuity contract, or

(ii) an income-averaging annuity contract;

(g) a right of the individual to a benefit under

(i) the Canada Pension Plan or a provincial plan described in section 3 of that Act,

(ii) the Old Age Security Act,

(iii) a provincial pension plan prescribed for the purpose of paragraph 60(v), or

(iv) a plan or arrangement instituted by the social security legislation of a country other than Canada or of a state, province or other political subdivision of such a country;

(h) a right of the individual to a benefit described in any of subparagraphs 56(1)(a)(iii) to (vi);

(i) a right of the individual to a payment out of a NISA Fund No. 2;

(j) an interest of the individual in a personal trust resident in Canada if the interest was never acquired for consideration and did not arise as a consequence of a qualifying disposition by the individual (within the meaning that would be assigned by subsection 107.4(1) if that subsection were read without reference to paragraphs 107.4(1)(h) and (i));

(k) an interest of the individual in a non-resident testamentary trust if the interest was never acquired for consideration; or

(l) an interest of the individual in a life insurance policy in Canada, except for that part of the policy in respect of which the individual is deemed by paragraph 138.1(1)(e) to have an interest in a related segregated fund trust.

“reportable property”

« bien à déclarer »

“reportable property” of an individual at a particular time means any property other than

(a) money that is legal tender in Canada and deposits of such money;

(b) property that would be an excluded right or interest of the individual if the definition “excluded right or interest” in this subsection were read without reference to paragraphs (c), (j) and (l) of that definition;

(c) if the individual is not a trust and was not, during the 120-month period that ends at the particular time, resident in Canada for more than 60 months, property described in subparagraph (4)(b)(iv) that is not taxable Canadian property; and

(d) any item of personal-use property the fair market value of which, at the particular time, is less than $10,000.

(6) Subsections (1) to (5) (other than paragraph 128.1(4)(d.1) of the Act, as enacted by subsection (4), and subsection 128.1(9) of the Act and the definition “reportable property” in subsection 128.1(10) of the Act, as enacted by subsection (5)) apply to changes in residence that occur after October 1, 1996, and

(a) an election made under any of paragraphs 128.1(6)(a) and (c), 128.1(7)(d) and (g) and 128.1(8)(c) of the Act, as enacted by subsection (5), by an individual who ceased to be resident in Canada before the day on which this Act receives royal assent, is deemed to have been made in a timely manner if it is made on or before the individual’s filing-due date for the taxation year that includes that day; and

(b) a form described in subsection 128.1(9) of the Act, as enacted by subsection (5), filed by an individual who ceased to be resident in Canada before the day on which this Act receives royal assent, is deemed to have been filed in a timely manner if it is filed on or before the individual’s filing-due date for the taxation year that includes that day.

(7) Paragraph 128.1(4)(d.1) of the Act, as enacted by subsection (4), applies to changes in residence that occur after 1992.

(8) Subsection 128.1(9) of the Act and the definition “reportable property” in subsection 128.1(10) of the Act, as enacted by subsection (5), apply to changes in residence that occur after 1995.

124. (1) If an individual ceased at any time after 1992 and before October 2, 1996 to be resident in Canada and so elects in writing and files the election with the Minister of National Revenue before the end of the sixth month following the month in which this Act receives royal assent, subparagraph 128.1(4)(b)(iii) of the Act as it read at that time shall, in respect of the cessation of residence, be read as enacted by this Act and as though subsection 128.1(10) of the Act, as enacted by this Act, applied.

(2) Where an individual makes an election under subsection (1), notwithstanding subsections 152(4) to (5) of the Act, any reassessment of the individual’s tax, interest or penalties for any year shall be made that is necessary to take the election into account.

125. (1) The Act is amended by adding the following after section 128.2:

Marginal note:Former resident — replaced shares

128.3 If, in a transaction to which section 51, subparagraphs 85.1(1)(a)(i) and (ii) or section 86 or 87 apply, a person acquires a share (in this section referred to as the “new share”) in exchange for another share (in this section referred to as the “old share”), for the purposes of section 119, subsections 126(2.21) to (2.23), 128.1(6) to (8), 180.1(1.4) and 220(4.5) and (4.6), the person is deemed not to have disposed of the old share, and the new share is deemed to be the same share as the old share.

(2) Subsection (1) applies after October 1, 1996.

126. (1) Section 129 of the Act is amended by adding the following after subsection (3):

Marginal note:Application

(3.1) Where, in a taxation year that begins after November 12, 1981, a corporation that last became a private corporation on or before that date and that was throughout the year a private corporation, other than a Canadian-controlled private corporation, has included in its income for the year an amount in respect of property that the corporation

(a) disposed of before November 13, 1981,

(b) was obligated to dispose of under the terms of an agreement in writing entered into before November 13, 1981, or

(c) is deemed by subsection 44(2) to have disposed of at any time after November 12, 1981 because of an event referred to in paragraph (b), (c) or (d) of the definition “proceeds of disposition” in section 54 in respect of the disposition that occurred before November 13, 1981,

paragraph 3(a) shall apply as if the corporation were a Canadian-controlled private corporation throughout the year, except that the total of the amounts determined under that paragraph in respect of the corporation for the year shall not exceed the amount that would be so determined if the only income of the corporation for the year were the amount included in respect of the disposition of such property.

(2) Subsection (1) applies to taxation years that end after June 1995 and before 2003.

127. (1) Subparagraph 130.1(1)(a)(ii) of the Act is amended by replacing the reference to the fraction “3/4” with a reference to the fraction “1/2”.

(2) Subparagraph 130.1(4)(a)(i) of the Act is amended by replacing the reference to the expression “4/3 of” with a reference to the word “twice”.

(3) Paragraph 130.1(4)(b) of the Act is replaced by the following:

(b) notwithstanding any other provision of this Act, any amount received by a taxpayer in a taxation year as, on account of, in lieu of payment of or in satisfaction of, the dividend shall not be included in computing the taxpayer’s income for the year as income from a share of the capital stock of the corporation, and

(i) where the dividend was in respect of capital gains of the corporation from dispositions of property that occurred before February 28, 2000 and the taxation year of the taxpayer began after February 27, 2000 and ended before October 18, 2000, 9/8 of the dividend is deemed to be a capital gain of the taxpayer from the disposition by the taxpayer of a capital property in the year,

(ii) where the dividend was in respect of capital gains of the corporation from dispositions of property that occurred before February 28, 2000, and the taxation year of the taxpayer includes February 27, 2000, the dividend is deemed to be a capital gain of the taxpayer from the disposition by the taxpayer of a capital property in the year and before February 28, 2000,

(iii) where the dividend was in respect of capital gains of the corporation from dispositions of property that occurred before February 28, 2000 and the taxation year of the taxpayer began after October 17, 2000, 3/2 of the dividend is deemed to be a capital gain of the taxpayer from the disposition by the taxpayer of a capital property in the year,

(iii.1) where the dividend was in respect of capital gains of the corporation from dispositions of property that occurred before February 28, 2000 and the taxation year of the taxpayer begins after February 27, 2000 and ends after October 17, 2000, 9/8 of the dividend is deemed to be a capital gain of the taxpayer from the disposition by the taxpayer of capital property in the year and before October 18, 2000,

(iv) where the dividend was in respect of capital gains of the corporation from dispositions of property that occurred after February 27, 2000 and before October 18, 2000, and the taxation year of the taxpayer began after October 17, 2000, 4/3 of the dividend is deemed to be a capital gain of the taxpayer from the disposition by the taxpayer of a capital property in the year,

(v) where the dividend was in respect of capital gains of the corporation from dispositions of property that occurred after February 27, 2000, and before October 18, 2000 and the taxation year of the taxpayer includes October 17, 2000, the dividend is deemed to be a capital gain of the taxpayer from the disposition by the taxpayer of a capital property in the year and in the period that began after February 27, 2000 and ended before October 18, 2000,

(vi) where the dividend was in respect of capital gains of the corporation from dispositions of property that occurred after February 27, 2000, and before October 17, 2000 and the taxation year of the taxpayer began after February 27, 2000 and ended before October 17, 2000, the dividend is deemed to be a capital gain of the taxpayer from the disposition by the taxpayer of a capital property in the year, and

(vii) in any other case, the dividend is deemed to be a capital gain of the taxpayer from the disposition of capital property after October 17, 2000 and in the year.

(4) Section 130.1 of the Act is amended by adding the following after subsection (4.1):

Marginal note:Reporting

(4.2) Where paragraph (4)(b) applies to a dividend paid by a mortgage investment corporation to a shareholder of any class of shares of its capital stock in the period that begins 91 days after the beginning of the corporation’s taxation year that includes February 28, 2000 or October 17, 2000 and ends 90 days after the end of that year, the corporation shall disclose to the shareholder in prescribed form the amount of the dividend that is in respect of capital gains realized on dispositions of property that occurred

(a) before February 28, 2000,

(b) after February 27, 2000 and before October 18, 2000, and

(c) after October 17, 2000

and, if it does not do so, the dividend is deemed to be in respect of capital gains from dispositions of property that occurred before February 28, 2000.

Marginal note:Allocation

(4.3) Where subsection (4) applies in respect of a dividend paid by a mortgage investment corporation at any time in the period that begins 91 days after the beginning of the corporation’s taxation year that includes February 28, 2000 or October 17, 2000 and ends 90 days after the end of that year, and the corporation does not elect under subsection (4.4), the following rules apply:

(a) the portion of the dividend that is in respect of capital gains from dispositions of property that occurred in the year and in the particular period that began at the beginning of the year and ended at the end of February 27, 2000 is deemed to be that proportion of the dividend that the net capital gains of the corporation from the dispositions of property in the particular period is of the total of the corporation’s net capital gains from the dispositions of property in each of the particular periods referred to in this subsection,

(b) the portion of the dividend that is in respect of capital gains from dispositions of property that occurred in the year and in the particular period that began at the beginning of February 28, 2000 and ended at the end of October 17, 2000 is deemed to be that proportion of the dividend that the net capital gains of the corporation from the dispositions of property in the particular period is of the total of the corporation’s net capital gains from the dispositions of property in each of the particular periods referred to in this subsection,

(c) the portion of the dividend that is in respect of capital gains from dispositions of property that occurred in the year and in the particular period that begins at the beginning of October 18, 2000 and ends at the end of the year, is deemed to be that proportion of the dividend that the net capital gains of the corporation from the dispositions of property in the particular period is of the total of the corporation’s net capital gains from the dispositions of property in each of the periods referred to in this subsection, and

in this subsection net capital gains from dispositions of property in a particular period means the amount, if any, by which the corporation’s capital gains from dispositions of property in the particular period exceeds the corporation’s capital losses from dispositions of property in the particular period.

Marginal note:Allocation

(4.4) Where subsection (4) applies in respect of a dividend paid by a mortgage investment corporation in the period that begins 91 days after the beginning of the corporation’s taxation year that includes February 28, 2000 or October 17, 2000 and ends 90 days after the end of that year, and the corporation so elects under this subsection in its return of income for the year, the following rules apply:

(a) the portion of the dividend that is in respect of capital gains from dispositions of property that occurred in the year and before February 28, 2000 is deemed to be that proportion of the dividend that the number of days that are in that year and before February 28, 2000 is of the number of days that are in that year;

(b) the portion of the dividend that is in respect of capital gains from dispositions of property that occurred in the year and in the period that began at the beginning of February 28, 2000 and ended at the end of October 17, 2000 is deemed to be that proportion of the dividend that the number of days that are in the year and in that period is of the number of days that are in the year; and

(c) the portion of the dividend that is in respect of capital gains from dispositions of property that occurred in the year and in the period that begins at the beginning of October 18, 2000 and ends at the end of the year, is deemed to be that proportion of the dividend that the number of days that are in the year and in that period is of the number of days that are in the year.

Marginal note:Allocation

(4.5) Where no dividend to which subsection (4.4) applies is paid by a mortgage investment corporation in respect of its net taxable capital gains for its taxation year that includes February 28, 2000 or October 17, 2000, the corporation has net capital gains or net capital losses from dispositions of property in the year, and the corporation so elects under this subsection in its return of income for the year

(a) the portion of those net capital gains and net capital losses that is in respect of capital gains and losses from dispositions of property that occurred before February 28, 2000 is deemed to be that proportion of the net capital gains or net capital losses respectively that the number of days that are in the year and before February 28, 2000 is of the number of days that are in the year,

(b) the portion of those net capital gains and net capital losses that is in respect of capital gains and losses from dispositions of property that occurred in the year and in the period that began at the beginning of February 28, 2000 and ended at the end of October 17, 2000, is deemed to be that proportion of the net capital gains or net capital losses respectively that the number of days that are in the year and in that period is of the number of days that are in the year, and

(c) the portion of those net capital gains and net capital losses that is in respect of capital gains and losses from dispositions of property that occurred in the year and in the period that began at the beginning of October 18, 2000 and ended at the end of the year, is deemed to be that proportion of the net capital gains or net capital losses respectively that the number of days that are in the year and in that period is of the number of days that are in the year,

and, for the purpose of this subsection,

(d) the net capital gains of a mortgage investment corporation from dispositions of property in a year is the amount, if any, by which the corporation’s capital gains from dispositions of property in a year exceeds the corporation’s capital losses from dispositions of property in the year, and

(e) the net capital losses of a mortgage investment corporation from dispositions of property in a year is the amount, if any, by which the corporation’s capital losses from dispositions of property in a year exceeds the corporation’s capital gains from dispositions of property in the year.

(5) Subsections (1) to (4) apply to taxation years that end after February 27, 2000 except that, for a corporation’s taxation year that includes February 28, 2000 or October 17, 2000, or began after February 28, 2000 and ended before October 17, 2000,

(a) the reference to the fraction “1/2” in subparagraph 130.1(1)(a)(ii) of the Act, as enacted by subsection (1), shall be read as a reference to the fraction in paragraph 38(a) of the Act, as enacted by subsection 22(1), that applies to the corporation for the year; and

(b) the reference to the word “twice” in subparagraph 130.1(4)(a)(i) of the Act, as enacted by subsection (2), shall be read as a reference to the expression “the fraction that is the reciprocal of the fraction in paragraph 38(a), as enacted by subsection 22(1) of the Income Tax Amendments Act, 2000, that applies to the corporation for the year, multiplied by”.

128. (1) Paragraph 131(1)(b) of the Act is replaced by the following:

(b) notwithstanding any other provision of this Act, any amount received by a taxpayer in a taxation year as, on account of, in lieu of payment of or in satisfaction of, the dividend shall not be included in computing the taxpayer’s income for the year as income from a share of the capital stock of the corporation, and

(i) where the dividend was in respect of capital gains of the corporation from dispositions of property that occurred before February 28, 2000, and the taxation year of the taxpayer began after February 27, 2000 and ended before October 18, 2000, 9/8 of the dividend is deemed to be a capital gain of the taxpayer from the disposition by the taxpayer of a capital property in the year,

(ii) where the dividend was in respect of capital gains of the corporation from dispositions of property that occurred before February 28, 2000, and the taxation year of the taxpayer includes February 27, 2000, the dividend is deemed to be a capital gain of the taxpayer from the disposition by the taxpayer of a capital property in the year and before February 28, 2000,

(iii) where the dividend was in respect of capital gains of the corporation from dispositions of property that occurred before February 28, 2000, and the taxation year of the taxpayer began after October 17, 2000, 3/2 of the dividend is deemed to be a capital gain of the taxpayer from the disposition by the taxpayer of a capital property in the year,

(iii.1) where the dividend was in respect of capital gains of the corporation from dispositions of property that occurred before February 28, 2000 and the taxation year of the taxpayer begins after February 27, 2000 and ends after October 17, 2000, 9/8 of the dividend is deemed to be a capital gain of the taxpayer from the disposition by the taxpayer of capital property in the year and before October 18, 2000,

(iv) where the dividend was in respect of capital gains of the corporation from dispositions of property that occurred after February 27, 2000 and before October 18, 2000, and the taxation year of the taxpayer began after October 17, 2000, 4/3 of the dividend is deemed to be a capital gain of the taxpayer from the disposition by the taxpayer of a capital property in the year,

(v) where the dividend was in respect of capital gains of the corporation from dispositions of property that occurred after February 27, 2000 and before October 18, 2000, and the taxation year of the taxpayer includes October 17, 2000, the dividend is deemed to be a capital gain of the taxpayer from the disposition by the taxpayer of a capital property in the year and in the period that began after February 27, 2000 and ended before October 18, 2000,

(vi) where the dividend was in respect of capital gains of the corporation from dispositions of property that occurred after February 27, 2000, and before October 17, 2000 and the taxation year of the taxpayer began after February 27, 2000 and ended before October 18, 2000, the dividend is deemed to be a capital gain of the taxpayer from the disposition by the taxpayer of a capital property in the year, and

(vii) in any other case, the dividend is deemed to be a capital gain of the taxpayer from the disposition of capital property after October 17, 2000 and in the year,

and, for the purpose of this paragraph,

(viii) dividends paid by a corporation are deemed to be paid in respect of the corporation’s net capital gains in the order in which those net capital gains were realized by the corporation,

(viii.1) capital gains redemptions are deemed to be made in respect of net capital gains in the order in which those net capital gains were realized by the corporation to the extent that they are not reduced by dividends, and

(ix) for the purposes of applying subparagraphs (viii) and (viii.1)

(A) net capital gains of a corporation for a year is the amount by which the corporation’s capital gains from dispositions of property in the year exceed the corporation’s capital losses from dispositions of property in the year,

(B) net capital losses of a corporation for a year is the amount by which the corporation’s capital losses from dispositions of property in the year exceed the corporation’s capital gains from dispositions of property in the year,

(C) net capital gains of a corporation for a year are deemed to be realized evenly throughout the year, and

(D) net capital losses of a corporation for a year are deemed to be a capital loss of the corporation from the disposition of property in the following year.

(2) Section 131 of the Act is amended by adding the following after subsection (1.4):

Marginal note:Reporting

(1.5) Where paragraph (1)(b) applies to a dividend paid by a mutual fund corporation to a shareholder of any class of shares of its capital stock, the corporation shall disclose to the shareholder in prescribed form the amount of the dividend that is in respect of capital gains realized on dispositions of property that occurred

(a) before February 28, 2000,

(b) after February 27, 2000 and before October 18, 2000, and

(c) after October 17, 2000,

and if it does not do so, the dividend is deemed to be in respect of capital gains from dispositions of property that occurred before February 28, 2000.

Marginal note:Allocation

(1.6) Where subsection (1) applies in respect of a dividend paid by a mutual fund corporation in the period that begins 60 days after the beginning of the corporation’s taxation year that includes February 28, 2000 or October 17, 2000 and ends 60 days after the end of that year, and the corporation does not elect under subsection (1.7), the following rules apply:

(a) the portion of the dividend that is in respect of capital gains of the mutual fund corporation from dispositions of property by the mutual fund corporation in the year and in the particular period that began at the beginning of the year and ended at the end of February 27, 2000 is deemed to be that proportion of the dividend that the corporation’s net capital gains from dispositions of property in the particular period to which the dividend relates is of the total of the corporation’s net capital gains from dispositions of property in each of the particular periods referred to in this subsection,

(b) the portion of the dividend that is in respect of capital gains of the mutual fund corporation from dispositions of property by the mutual fund corporation in the year and in the particular period that began at the beginning of February 28, 2000 and ended at the end of October 17, 2000 is deemed to be that proportion of the dividend that the corporation’s net capital gains from dispositions of property in the particular period is of the total of the corporation’s net capital gains from dispositions of property in each of the particular periods referred to in this subsection, and

(c) the portion of the dividend that is in respect of capital gains of the mutual fund corporation from dispositions of property by the mutual fund corporation in the year and in the particular period that begins at the beginning of October 18, 2000 and ends at the end of the year, is deemed to be that proportion of the dividend that the corporation’s net capital gains from dispositions of property in the particular period is of the total of the corporation’s net capital gains from dispositions of property in each of the particular periods referred to in this subsection,

and, in this subsection and in subsection (1.8), net capital gains from dispositions of property in a particular period means the amount, if any, by which the corporation’s capital gains from dispositions of property in the particular period exceeds the corporation’s capital losses from dispositions of property in the particular period.

Marginal note:Allocation

(1.7) Where subsection (1) applies in respect of a dividend paid by a mutual fund corporation in the period that begins 60 days after the beginning of the corporation’s taxation year that includes February 28, 2000 or October 17, 2000 and ends 60 days after the end of that year, and the corporation so elects under this paragraph in its return of income

(a) the portion of the dividend that is in respect of capital gains from dispositions of property that occurred in the year and before February 28, 2000 is deemed to be that proportion of the dividend that the number of days that are in that year and before February 28, 2000 is of the number of days that are in that year;

(b) the portion of the dividend that is in respect of capital gains from dispositions of property that occurred in the year and in the period that began at the beginning of February 28, 2000 and ended at the end of October 17, 2000 is deemed to be that proportion of the dividend that the number of days that are in the year and in that period is of the number of days that are in the year; and

(c) the portion of the dividend that is in respect of capital gains from dispositions of property that occurred in the year and in the period that begins at the beginning of October 18, 2000 and ends at the end of the year, is deemed to be that proportion of the dividend that the number of days that are in the year and in that period is of the number of days that are in the year.

Marginal note:Allocation

(1.8) For the purposes of subsection (1.6) and (1.7), where the total amount of dividends paid by a mutual fund corporation in the period that begins 60 days after the beginning of the corporation’s taxation year that includes February 28, 2000 or October 17, 2000 and ends 60 days after the end of that year and to which subsection (1) applies exceeds the total amount of the corporation’s net capital gains from dispositions of property in that year

(a) the amount of those dividends to which subsections (1.6) and (1.7) apply is the amount of the corporation’s net capital gains from dispositions of property in that year, and

(b) the amount, if any, by which total amount of the dividends paid by the corporation in the period exceeds the total amount of the corporation’s net capital gains from dispositions of property in that year is deemed to be a dividend in respect of capital gains from dispositions of property in the first of the periods described in subsection (1.6) that ends in the year.

Marginal note:Allocation

(1.9) Where no dividend to which subsection (1.7) applies is paid by a mutual fund corporation in respect of its net taxable capital gains for its taxation year that includes February 28, 2000 or October 17, 2000, the corporation has net capital gains or net capital losses from dispositions of property in the year, and the corporation so elects under this subsection in its return of income for the year

(a) the portion of those net capital gains and net capital losses that is in respect of capital gains and losses from dispositions of property that occurred before February 28, 2000 is deemed to be that proportion of the net capital gains or net capital losses respectively that the number of days that are in the year and before February 28, 2000 is of the number of days that are in the year,

(b) the portion of those net capital gains and net capital losses that is in respect of capital gains and losses from dispositions of property that occurred in the year and in the period that began at the beginning of February 28, 2000 and ended at the end of October 17, 2000, is deemed to be that proportion of the net capital gains or net capital losses respectively that the number of days that are in the year and in that period is of the number of days that are in the year, and

(c) the portion of those net capital gains and net capital losses that is in respect of capital gains and losses from dispositions of property that occurred in the year and in the period that began at the beginning of October 18, 2000 and ended at the end of the year, is deemed to be that proportion of the net capital gains or net capital losses respectively that the number of days that are in the year and in that period is of the number of days that are in the year,

and, for the purpose of this subsection,

(d) the net capital gains of a mutual fund corporation from dispositions of property in the year is the amount, if any, by which the corporation’s capital gains from dispositions of property in a year exceeds the corporation’s capital losses from dispositions of property in the year, and

(e) the net capital losses of a mutual fund corporation from dispositions of property in the year is the amount, if any, by which the corporation’s capital losses from dispositions of property in a year exceeds the corporation’s capital gains from dispositions of property in the year.

(3) Paragraph 131(2)(a) of the Act is replaced by the following:

(a) may, on sending the notice of assessment for the year, refund an amount (in this subsection referred to as its “capital gains refund” for the year) equal to the lesser of

(i) the total of

(A) 14% of the total of

(I) all capital gains dividends paid by the corporation in the period commencing 60 days after the beginning of the year and ending 60 days after the end of the year, and

(II) its capital gains redemptions for the year, and

(B) the amount, if any, that the Minister determines to be reasonable in the circumstances, after giving consideration to the percentages applicable in determining the corporation’s capital gains refund for the year and preceding taxation years and the percentages applicable in determining the corporation’s refundable capital gains tax on hand at the end of the year, and

(ii) the corporation’s refundable capital gains tax on hand at the end of the year; and

(4) Subparagraph (b)(iii) of the definition “capital gains dividend account” in subsection 131(6) of the Act is replaced by the following:

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

(A) an amount equal to 100/21 of its capital gains refund for any taxation year throughout which it was a mutual fund corporation where the year ended

(I) more than 60 days before that time, and

(II) before February 28, 2000,

(B) an amount equal to 100/18.7 of its capital gains refund for any taxation year throughout which it was a mutual fund corporation where the year ended

(I) more than 60 days before that time, and

(II) after February 27, 2000 and before October 18, 2000, or

(C) an amount equal to 100/14 of its capital gain refund for any taxation year throughout which it was a mutual fund corporation where the year ended

(I) more than 60 days before that time, and

(II) after October 17, 2000;

(5) The description of C in the definition “capital gains redemptions” in subsection 131(6) of the Act is amended by replacing the reference to the fraction “100/21” with a reference to the fraction “100/14”.

(6) Paragraph 131(8.1)(a) of the Act is replaced by the following:

(a) throughout the period that begins on the later of February 21, 1990 and the day of its incorporation and ends at that time, all or substantially all of its property consisted of property other than property that would be taxable Canadian property if the definition “taxable Canadian property” in subsection 248(1) were read without reference to paragraph (b) of that definition; or

(7) Subsections (1) to (5) apply to taxation years that end after February 27, 2000 except that, for a taxation year of a mutual fund corporation that includes February 28, 2000 or October 17, 2000, or began after February 28, 2000 and ended before October 17, 2000,

(a) the reference to the percentage “14%” in clause 131(2)(a)(i)(A) of the Act, as enacted by subsection (3), shall be read as a reference to the percentage determined when 28% is multiplied by the fraction in paragraph 38(a) of the Act, as enacted by subsection 22(1), that applies to the corporation for the year;

(b) the reference to the fraction “100/18.7” in clause (b)(iii)(B) and the fraction “100/14” in clause (b)(iii)(C) of the definition “capital gains dividend account” in subsection 131(6) of the Act, as enacted by subsection (4), shall be read as a reference to the fraction “100/28X”, where “X” is the fraction in paragraph 38(a) of the Act, as enacted by subsection 22(1), that applies to the corporation for the year; and

(c) the reference to the fraction “100/14” in the description of C in the definition “capital gains redemptions” in subsection 131(6) of the Act, as enacted by subsection (5), shall be read as a reference to the fraction “100/28X”, where “X” is the fraction in paragraph 38(a) of the Act, as enacted by subsection 22(1), that applies to the corporation for the year.

(8) Subsection (6) applies after October 1, 1996.

129. (1) Paragraph 132(1)(a) of the Act is replaced by the following:

(a) may, on sending the notice of assessment for the year, refund an amount (in this subsection referred to as its “capital gains refund” for the year) equal to the lesser of

(i) the total of

(A) 14.5% of the total of the trust’s capital gains redemptions for the year, and

(B) the amount, if any, that the Minister determines to be reasonable in the circumstances, after giving consideration to the percentages applicable in determining the trust’s capital gains refunds for the year and preceding taxation years and the percentages applicable in determining the trust’s refundable capital gains tax on hand at the end of the year, and

(ii) the trust’s refundable capital gains tax on hand at the end of the year; and

(2) The first formula in the definition “capital gains redemptions” in subsection 132(4) of the Act is replaced by the following:

(A / B × (C + D)) – E

Marginal note:

(3) The description of A in the definition “capital gains redemptions” in subsection 132(4) of the Act is replaced by the following:


is the total of all amounts each of which is the portion of an amount paid by the trust in the year on the redemption of a unit in the trust that is included in the proceeds of disposition in respect of that redemption,

(4) The description of C in the definition “capital gains redemptions” in subsection 132(4) of the Act is amended by replacing the reference to the fraction “100/21.75” with a reference to the fraction “100/14.5”.

(5) The definition “capital gains redemptions” in subsection 132(4) of the Act is amended by striking out the word “and” at the end of the description of C, by adding the word “and” at the end of the description of D and by adding the following after the description of D:


is twice the total of all amounts each of which is an amount designated under subsection 104(21) for the year by the trust in respect of a unit of the trust redeemed by the trust at any time in the year and after December 21, 2000;

(6) Section 132 of the Act is amended by adding the following after subsection (6.1):

Marginal note:Retention of status as mutual fund trust

(6.2) A trust is deemed to be a mutual fund trust throughout a calendar year where

(a) at any time in the year, the trust would, if this section were read without reference to this subsection, have ceased to be a mutual fund trust

(i) because the condition described in paragraph 108(2)(a) ceased to be satisfied,

(ii) because of the application of paragraph (6)(c), or

(iii) because the trust ceased to exist;

(b) the trust was a mutual fund trust at the beginning of the year; and

(c) the trust would, throughout the portion of the year throughout which it was in existence, have been a mutual fund trust if

(i) in the case where the condition described in paragraph 108(2)(a) was satisfied at any time in the year, that condition were satisfied throughout the year,

(ii) subsection (6) were read without reference to paragraph (c) of that subsection, and

(iii) this section were read without reference to this subsection.

(7) Paragraphs 132(7)(a) and (b) of the Act are replaced by the following:

(a) throughout the period that began on the later of February 21, 1990 and the day of its creation and ended at that time, all or substantially all of its property consisted of property other than property that would be taxable Canadian property if the definition “taxable Canadian property” in subsection 248(1) were read without reference to paragraph (b) of that definition; or

(b) it has not issued any unit (other than a unit issued to a person as a payment, or in satisfaction of the person’s right to enforce payment, of an amount out of the trust’s income determined before the application of subsection 104(6), or out of the trust’s capital gains) of the trust after February 20, 1990 and before that time to a person who, after reasonable inquiry, it had reason to believe was non-resident, except where the unit was issued to that person under an agreement in writing entered into before February 21, 1990.

(8) Subsections (1), (2), (4) and (5) apply to taxation years that end after February 27, 2000 except that, for a taxation year of a mutual fund trust that includes February 28, 2000 or October 17, 2000, or began after February 28, 2000 and ended before October 17, 2000,

(a) the reference to the percentage “14.5%” in paragraph 132(1)(a) of the Act, as enacted by subsection (1), shall be read as a reference to the percentage determined when 29% is multiplied by the fraction in paragraph 38(a) of the Act, as enacted by subsection 22(1), that applies to the trust for the year;

(b) the reference to the fraction “100/14.5” in the description of C in the definition “capital gains redemptions” in subsection 132(4) of the Act, as enacted by subsection (4), shall be read as a reference to the fraction “100/29X”, where “X” is the fraction in paragraph 38(a) of the Act, as enacted by subsection 22(1), that applies to the trust for the year; and

(c) the reference to the word “twice” in the description of E in the definition “capital gains redemption” in subsection 132(4) of the Act, as enacted by subsection (5), shall be read as a reference to the expression “the fraction that is the reciprocal of the fraction in paragraph 38(a), as enacted by subsection 22(1) of the Income Tax Amendments Act, 2000, that applies to the taxpayer for the year, multiplied by”.

(9) Subsection (3) applies to taxation years that end after February 27, 2000.

(10) Subsection (6) applies to the 1990 and subsequent taxation years.

(11) Paragraph 132(7)(a) of the Act, as enacted by subsection (7), applies after October 1, 1996.

(12) Paragraph 132(7)(b) of the Act, as enacted by subsection (7), applies after February 20, 1990.

130. (1) Paragraph 132.11(1)(b) of the Act is replaced by the following:

(b) where the trust’s taxation year ends on December 15 because of paragraph (a), subject to subsection (1.1), each subsequent taxation year of the trust is deemed to be the period that begins at the beginning of December 16 of a calendar year and ends at the end of December 15 of the following calendar year or at such earlier time as is determined under paragraph 132.2(1)(b) or subsection 142.6(1); and

(2) Section 132.11 of the Act is amended by adding the following after subsection (1):

Marginal note:Revocation of election

(1.1) Where a particular taxation year of a trust ends on December 15 of a calendar year because of an election made under paragraph (1)(a), the trust applies to the Minister in writing before December 15 of that calendar year (or before a later time that is acceptable to the Minister) to have this subsection apply to the trust, with the concurrence of the Minister

(a) the trust’s taxation year following the particular taxation year is deemed to begin immediately after the end of the particular taxation year and end at the end of that calendar year; and

(b) each subsequent taxation year of the trust is deemed to be determined as if that election had not been made.

(3) Subsection 132.11(4) of the Act is replaced by the following:

Marginal note:Amounts paid or payable to beneficiaries

(4) For the purposes of subsections (5) and (6) and 104(6) and (13) and notwithstanding subsection 104(24), each amount that is paid, or that becomes payable, by a trust to a beneficiary after the end of a particular taxation year of the trust that ends on December 15 of a calendar year because of subsection (1) and before the end of that calendar year, is deemed to have been paid or to have become payable, as the case may be, to the beneficiary at the end of the particular year and not at any other time.

(4) Subsection 132.11(6) of the Act is amended by adding the word “and” at the end of paragraph (a), by striking out the word “and” at the end of paragraph (b) and by repealing paragraph (c).

(5) Subsections (1) and (2) apply to taxation years that end after 1999.

(6) Subsections (3) and (4) apply to the 2000 and subsequent taxation years.

131. (1) Paragraph 133(1)(c) of the Act is replaced by the following:

(c) the only taxable capital gains and allowable capital losses referred to in paragraph 3(b) were from dispositions of taxable Canadian property,

(2) Paragraph 133(1)(d) of the Act is amended by replacing the reference to the expression “4/3 of” with a reference to the word “twice”.

(3) Paragraph (a) of the definition “Canadian property” in subsection 133(8) of the Act is replaced by the following:

(a) taxable Canadian property, and

(4) The description of M in paragraph (c) of the definition “capital gains dividend account” in subsection 133(8) of the Act is replaced by the following:


is the total of the corporation’s capital gains for taxation years ending in the period from dispositions in the period of taxable Canadian property, and

(5) The portion of the definition “non-resident-owned investment corporation” in subsection 133(8) of the Act after paragraph (d) is replaced by the following:

(e) it has, on or before the earlier of February 27, 2000 and the day that is 90 days after the beginning of its first taxation year that begins after 1971, elected in prescribed manner to be taxed under this section, and

(f) it has not, before the end of the last taxation year in the period, revoked in prescribed manner its election,

except that

(g) a new corporation (within the meaning assigned by section 87) formed as a result of an amalgamation after June 18, 1971 of two or more predecessor corporations is not a non-resident-owned investment corporation unless each of the predecessor corporations was, immediately before the amalgamation, a non-resident-owned investment corporation,

(h) where a corporation is a new corporation described in paragraph (g), and each of the predecessor corporations elected in a timely manner under paragraph (e), paragraph (e) shall be read, in its application to the new corporation, without reference to the words “the earlier of February 27, 2000 and”, and

(i) subject to section 134.1, a corporation is not a non-resident-owned investment corporation in any taxation year that ends after the earlier of,

(i) the first time, if any, after February 27, 2000 at which the corporation effects an increase in capital, and

(ii) the corporation’s last taxation year that begins before 2003;

(6) Subsection 133(8) of the Act is amended by adding the following in alphabetical order:

“increase in capital”

« augmentation de capital »

“increase in capital” in respect of a corporation means a transaction (other than a transaction carried out pursuant to an agreement in writing made before February 28, 2000, referred to in this definition as a “specified transaction”) in the course of which the corporation issues additional shares of its capital stock or incurs indebtedness, if the transaction has the effect of increasing the total of

(a) the corporation’s liabilities, and

(b) the fair market value of all the shares of its capital stock

to an amount that is substantially greater than that total would have been on February 27, 2000 if all specified transactions had been carried out immediately before that day;

(7) Subsections (1), (3) and (4) apply after October 1, 1996.

(8) Subsection (2) applies to taxation years that end after February 27, 2000 except that, for the taxation year of a corporation that includes February 28, 2000 or October 17, 2000, or began after February 28, 2000 and ended before October 17, 2000, the reference to the word “twice” in paragraph 133(1)(d) of the Act, as enacted by subsection (2), shall be read as a reference to the expression “the fraction that is the reciprocal of the fraction in paragraph 38(a), as enacted by subsection 22(1) of the Income Tax Amendments Act, 2000, that applies to the taxpayer for the year, multiplied by”.

(9) Subsections (5) and (6) apply after February 27, 2000.

132. (1) The Act is amended by adding the following after section 134:

Marginal note:NRO — transition

134.1 (1) This section applies to a corporation that

(a) was a non-resident-owned investment corporation in a taxation year;

(b) is not a non-resident-owned investment corporation in the following taxation year (in this section referred to as the corporation’s “first non-NRO year”); and

(c) elects in writing filed with the Minister on or before the corporation’s filing-due date for its first non-NRO year to have this section apply.

Marginal note:Application

(2) A corporation to which this section applies is deemed to be a non-resident-owned investment corporation in its first non-NRO year for the purposes of applying, in respect of dividends paid on shares of its capital stock in its first non-NRO year to a non-resident person or a non-resident-owned investment corporation, subsections 133(6) to (9) (other than the definition “non-resident-owned investment corporation” in subsection 133(8)) and section 212 and any tax treaty.

Marginal note:Revocation

134.2 (1) This section applies to a corporation that

(a) revokes at any time (in this section described as the “revocation time”) its election to be taxed under section 133;

(b) elects to have this section apply, by filing an election in writing with the Minister on or before the corporation’s filing-due date for the taxation year of the corporation (in this section referred to as the “revocation year”) that would have included the revocation time if the corporation had not so elected; and

(c) specifies in the election a time (in this section referred to as the “elected time”) that is in the revocation year and is not after the revocation time.

Marginal note:Consequences

(2) Where this section applies to a corporation,

(a) the corporation’s taxation year that would have included the elected time, if the corporation had not elected to have this section apply, is deemed to end immediately before the elected time;

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

(c) notwithstanding paragraph (f) of the definition “non-resident-owned investment corporation” in subsection 133(8), the corporation is deemed to be a non-resident-owned investment corporation for the period that begins at the beginning of the revocation year and ends immediately before the elected time.

(2) Section 134.1 of the Act, as enacted by subsection (1), applies to a corporation that ceases to be a non-resident-owned investment corporation because of a transaction or event that occurs, or a circumstance that arises, in a taxation year of the corporation that ends after February 27, 2000.

(3) Section 134.2 of the Act, as enacted by subsection (1), applies to revocations made after February 27, 2000.

(4) An election under paragraph 134.1(1)(c) or 134.2(1)(b) of the Act, as enacted by subsection (1), is deemed to have been made in a timely manner if it is made on or before the electing corporation’s filing-due date for its first taxation year that ends after this Act receives royal assent.

133. (1) Subparagraph 138(5)(b)(i) of the Act is replaced by the following:

(i) interest on borrowed money used to acquire designated insurance property for the year, or to acquire property for which designated insurance property for the year was substituted property, for the period in the year during which the designated insurance property was held by the insurer in respect of the business,

(2) Paragraph 138(5)(b) of the Act is amended by adding the word “or” at the end of subparagraph (ii), by striking out the word “or” at the end of subparagraph (iii) and by repealing subparagraph (iv).

(3) The portion of subsection 138(11.3) of the Act after paragraph (b) is replaced by the following:

the following rules apply:

(c) the insurer is deemed to have disposed of the property at the beginning of the year for proceeds of disposition equal to its fair market value at that time and to have reacquired the property immediately after that time at a cost equal to that fair market value,

(d) where paragraph (a) applies, any gain or loss arising from the disposition is deemed not to be a gain or loss from designated insurance property of the insurer in the year, and

(e) where paragraph (b) applies, any gain or loss arising from the disposition is deemed to be a gain or loss from designated insurance property of the insurer in the year.

(4) Paragraph 138(11.5)(b) of the Act is replaced by the following:

(b) the transferor has, at that time or within 60 days after that time, transferred all or substantially all of the property (in this subsection referred to as the “transferred property) that is owned by it at that time and that was designated insurance property in respect of the business for the taxation year that, because of paragraph (h), ended immediately before that time

(i) to a corporation (in this subsection referred to as the “transferee”) that is a qualified related corporation (within the meaning assigned by subsection 219(8)) of the transferor that began immediately after that time to carry on that insurance business in Canada, and

(ii) for consideration that includes shares of the capital stock of the transferee,

(5) Paragraph 138(11.91)(e) of the Act is replaced by the following:

(e) the insurer is deemed to have disposed, immediately before the beginning of the particular taxation year, of each property owned by it at that time that is designated insurance property in respect of the business referred to in paragraph (a) for the particular taxation year, for proceeds of disposition equal to the fair market value at that time and to have reacquired, at the beginning of the particular taxation year, the property at a cost equal to that fair market value, and

(6) Paragraph 138(11.94)(b) of the Act is replaced by the following:

(b) the transferor has, at that time or within 60 days after that time,

(i) in the case of a transferor that is a life insurer and that carries on an insurance business in Canada and in a country other than Canada in the year, transferred all or substantially all of the property (in subsection (11.5) referred to as the “transferred property”) that is owned by it at that time and that was designated insurance property in respect of the business for the taxation year that, because of paragraph (11.5)(h), ended immediately before that time, or

(ii) in any other case, transferred all or substantially all of the property owned by it at that time and used by it in the year in, or held by it in the year in the course of, carrying on that insurance business in Canada in that year (in subsection (11.5) referred to as the “transferred property”)

to a corporation resident in Canada (in this subsection referred to as the “transferee”) that is a subsidiary wholly-owned corporation of the transferor that, immediately after that time, began to carry on that insurance business in Canada for consideration that includes shares of the capital stock of the transferee,

(7) The definition “designated insurance property” in subsection 138(12) of the Act is replaced by the following:

“designated insurance property”

« bien d’assurance désigné »

“designated insurance property” for a taxation year of an insurer (other than an insurer resident in Canada that at no time in the year carried on a life insurance business) that, at any time in the year, carried on an insurance business in Canada and in a country other than Canada, means property determined in accordance with prescribed rules except that, in its application to any taxation year, “designated insurance property” for the 1998 or a preceding taxation year means property that was, under this subsection as it read in its application to taxation years that ended in 1996, property used by it in the year in, or held by it in the year in the course of, carrying on an insurance business in Canada;

(8) Subsections (1) to (3) and (7) apply to the 1997 and subsequent taxation years.

(9) Subsections (4) to (6) apply to the 1999 and subsequent taxation years except that, where a taxpayer or a taxpayer’s legal representative so elects in writing and files with the Minister of National Revenue before 2002 its election in respect of one or more of paragraph 138(11.5)(b) of the Act, as enacted by subsection (4), paragraph 138(11.91)(e) of the Act, as enacted by subsection (5), or paragraph 138(11.94)(b) of the Act, as enacted by subsection (6), each of the subsections in respect of which the election was made applies to the taxpayer’s 1997 and subsequent taxation years.

134. (1) Section 138.1 of the Act is amended by adding the following after subsection (3):

Marginal note:Deemed gains and losses

(3.1) Where an amount is deemed under subsection (3) to be a capital gain or capital loss of a policyholder or other beneficiary (in this subsection referred to as the “taxpayer”) of a related segregated fund trust, in respect of capital gains or losses realized in a taxation year of the related segregated fund trust that includes February 28, 2000 or October 17, 2000, and the related segregated fund trust so elects under this subsection in its return of income for the year,

(a) the portion of the gains and losses that are in respect of capital gains or losses from dispositions of property that occurred before February 28, 2000 is deemed to be that proportion of the gains or losses that the number of days that are in the year and before February 28, 2000 is of the number of days that are in the year;

(b) the portion of the gains and losses that is in respect of capital gains or losses from dispositions of property that occurred in the year and in the period that begins at the beginning of February 28, 2000 and ends at the end of October 17, 2000, is deemed to be that proportion of the gains or losses that the number of days that are in the year and in that period is of the number of days that are in the year; and

(c) the portion of the gains and losses that is in respect of capital gains or losses from dispositions of property that occurred in the year and in the period that begins at the beginning of October 18, 2000 and ends at the end of the year, is deemed to be that proportion of the gains or losses that the number of days that are in the year and in that period is of the number of days that are in the year.

Marginal note:Deemed gains and losses — taxpayer

(3.2) Where a capital gain or a capital loss is deemed by subsection (3) to be a capital gain or a capital loss of a taxpayer and not that of a related segregated fund trust,

(a) if the capital gain or capital loss was in respect of capital gains or capital losses from dispositions of property by the related segregated fund trust that occurred before February 28, 2000 and that taxation year of the taxpayer includes February 27, 2000, the capital gain or the capital loss is deemed to be a capital gain or a capital loss, as the case may be, of the taxpayer from the disposition by the taxpayer of capital property in the taxpayer’s taxation year and before February 28, 2000;

(b) if the capital gain or capital loss was in respect of capital gains or capital losses from dispositions of property by the related segregated fund trust that occurred before February 28, 2000 and the taxation year of the taxpayer began after February 27, 2000 and ended before October 18, 2000, 9/8 of the capital gain or the capital loss is deemed to be a capital gain or a capital loss, as the case may be, of the taxpayer from the disposition by the taxpayer of capital property in the taxpayer’s taxation year;

(c) if the capital gain or capital loss was in respect of capital gains or capital losses from dispositions of property by the related segregated fund trust that occurred before February 28, 2000 and the taxation year of the taxpayer began after February 27, 2000 and ended after October 17, 2000, 9/8 of the capital gain or the capital loss is deemed to be a capital gain or a capital loss, as the case may be, of the taxpayer from the disposition by the taxpayer of capital property in the taxpayer’s taxation year and before October 18, 2000;

(d) if the capital gain or capital loss was in respect of capital gains or capital losses from dispositions of property by the related segregated fund trust that occurred before February 28, 2000 and the taxation year of the taxpayer began after October 17, 2000, 3/2 of the capital gain or the capital loss is deemed to be a capital gain or a capital loss, as the case may be, of the taxpayer from the disposition by the taxpayer of capital property in the taxpayer’s taxation year;

(e) if the capital gain or capital loss was in respect of capital gains or capital losses from dispositions of property by the related segregated fund that occurred after February 27, 2000 and before October 18, 2000 and the taxation year of the taxpayer began after October 17, 2000, 4/3 of the capital gain or capital loss is deemed to be a capital gain or a capital loss, as the case may be, of the taxpayer from the disposition by the taxpayer of capital property in the taxpayer’s taxation year;

(f) if the capital gain or capital loss was in respect of capital gains or capital losses from dispositions of property by the related segregated fund trust that occurred after February 27, 2000 and before October 18, 2000 and the taxation year of the taxpayer includes February 28, 2000 and October 17, 2000, the capital gain or the capital loss is deemed to be a capital gain or a capital loss, as the case may be, of the taxpayer from the disposition by the taxpayer of capital property in the taxpayer’s taxation year and in the period that began after February 27, 2000 and ended before October 18, 2000;

(g) if the capital gain or capital loss was in respect of capital gains or capital losses from dispositions of property by the related segregated fund trust that occurred after February 27, 2000 and before October 17, 2000 and the taxation year of the taxpayer began after February 27, 2000 and ended before October 17, 2000, the capital gain or the capital loss is deemed to be a capital gain or a capital loss, as the case may be, of the taxpayer from the disposition by the taxpayer of capital property in the taxpayer’s taxation year; and

(h) in any other case, the capital gain or the capital loss is deemed to be a capital gain or a capital loss, as the case may be, of the taxpayer from the disposition of capital property by the taxpayer in the taxpayer’s taxation year and after October 17, 2000.

(2) Subsection (1) applies to taxation years that end after February 27, 2000.

135. (1) The portion of subsection 141(5) of the Act before paragraph (a) is replaced by the following:

Marginal note:Exclusion from taxable Canadian property

(5) For the purpose of paragraph (d) of the definition “taxable Canadian property” in subsection 248(1), a share of the capital stock of a corporation is deemed to be listed at any time on a stock exchange prescribed for the purpose of that definition where

(2) Subsection (1) applies after December 15, 1998.

136. (1) The portion of subsection 142.2(1) of the Act before the definition “financial institution” is replaced by the following:

Marginal note:Definitions

142.2 (1) In this section and sections 142.3 to 142.7,

(2) Subsection (1) applies after June 27, 1999.

137. (1) Subsection 142.6(2) of the Act is replaced by the following:

Marginal note:Ceasing to use property in Canadian business

(1.1) If at a particular time in a taxation year a taxpayer that is a non-resident financial institution (other than a life insurance corporation) ceases to use, in connection with a business or part of a business carried on by the taxpayer in Canada immediately before the particular time, a property that is a mark-to-market property of the taxpayer for the year or a specified debt obligation, but that is not a property that was disposed of by the taxpayer at the particular time,

(a) the taxpayer is deemed

(i) to have disposed of the property immediately before the time that was immediately before the particular time for proceeds equal to its fair market value at the time of disposition and to have received those proceeds at the time of disposition in the course of carrying on the business or the part of the business, as the case may be, and

(ii) to have reacquired the property at the particular time at a cost equal to those proceeds; and

(b) in determining the consequences of the disposition in subparagraph (a)(i), subsection 142.4(11) does not apply to any payment received by the taxpayer after the particular time.

Marginal note:Beginning to use property in a Canadian business

(1.2) If at a particular time a taxpayer that is a non-resident financial institution (other than a life insurance corporation) begins to use, in connection with a business or part of a business carried on by the taxpayer in Canada, a property that is a mark-to-market property of the taxpayer for the year that includes the particular time or a specified debt obligation, but that is not a property that was acquired by the taxpayer at the particular time, the taxpayer is deemed

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

(b) to have reacquired the property at the particular time at a cost equal to those proceeds.

Marginal note:Specified debt obligation marked to market

(1.3) In applying subsection (1.1) to a taxpayer in respect of a property in a taxation year,

(a) the definition “mark-to-market property” in subsection 142.2(1) shall be applied as if the year ended immediately before the particular time referred to in subsection (1.1); and

(b) if the taxpayer does not have financial statements for the period ending immediately before the particular time referred to in subsection (1.1), references in the definition to financial statements for the year shall be read as references to the financial statements that it is reasonable to expect would have been prepared if the year had ended immediately before the particular time.

Marginal note:Deemed disposition not applicable

(2) For the purposes of this Act, the determination of when a taxpayer acquired a share shall be made without regard to a disposition or acquisition that occurred because of subsection 142.5(2) or subsection (1), (1.1) or (1.2).

(2) Subsection (1) applies after June 27, 1999 in respect of an authorized foreign bank, and after August 8, 2000 in any other case.

138. (1) The Act is amended by adding the following after section 142.6:

Conversion of Foreign Bank Affiliate to Branch

Marginal note:Definitions

142.7 (1) The definitions in this subsection apply in this section.

“Canadian affiliate”

« filiale canadienne »

“Canadian affiliate” of an entrant bank at any particular time means a Canadian corporation that was, immediately before the particular time, affiliated with the entrant bank and that was, at all times during the period that began on February 11, 1999 and ended immediately before the particular time,

(a) affiliated with either

(i) the entrant bank, or

(ii) a foreign bank (within the meaning assigned by section 2 of the Bank Act) that is affiliated with the entrant bank at the particular time; and

(b) either

(i) a bank,

(ii) a corporation authorized under the Trust and Loan Companies Act to carry on the business of offering to the public its services as trustee, or

(iii) a corporation of which the principal activity in Canada consists of any of the activities referred to in subparagraphs 518(3)(a)(i) to (v) of the Bank Act and in which the entrant bank or a non-resident person affiliated with the entrant bank holds shares under the authority, directly or indirectly, of an order issued by the Minister of Finance or the Governor in Council under subsection 521(1) of that Act.

“eligible property”

« bien admissible »

“eligible property” of a Canadian affiliate at any time means a property described in any of paragraphs 85(1.1)(a) to (g.1) that is, immediately before that time, used or held by it in carrying on its business in Canada.

“entrant bank”

« banque entrante »

“entrant bank” means a non-resident corporation that is, or has applied to the Superintendent of Financial Institutions to become, an authorized foreign bank.

“qualifying foreign merger”

« fusion étrangère déterminée »

“qualifying foreign merger” means a merger or combination of two or more corporations that would be a “foreign merger” within the meaning assigned by subsection 87(8.1) if that subsection were read without reference to the words “and otherwise than as a result of the distribution of property to one corporation on the winding-up of another corporation.

Marginal note:Qualifying foreign merger

(2) Where an entrant bank was formed as the result of a qualifying foreign merger, after February 11, 1999, of two or more corporations (referred to in this subsection as “predecessors”), and at the time immediately before the merger, there were one or more Canadian corporations (referred to in this subsection as “predecessor affiliates”), each of which at that time would have been a Canadian affiliate of a predecessor if the predecessor were an entrant bank at that time,

(a) for the purpose of the definition “Canadian affiliate” in subsection (1),

(i) each predecessor affiliate is deemed to have been affiliated with the entrant bank throughout the period that began on February 11, 1999 and ended at the time of the merger,

(ii) the expression “entrant bank” in subparagraph (b)(iii) of the definition is deemed to include a predecessor, and

(iii) if two or more of the predecessor affiliates are amalgamated or merged at any time after February 11, 1999 to form a new corporation, the new corporation is deemed to have been affiliated with the entrant bank throughout the period that began on February 11, 1999 and ended at the time of the amalgamation or merger of the predecessor affiliates; and

(b) if at least one of the predecessors complied with the terms of subsection (11)(a), the entrant bank is deemed to have complied with those terms.

Marginal note:Branch-establishment rollover

(3) If a Canadian affiliate of an entrant bank transfers an eligible property to the entrant bank, the entrant bank begins immediately after the transfer to use or hold the transferred property in its Canadian banking business and the Canadian affiliate and the entrant bank jointly elect, in accordance with subsection (11), to have this subsection apply in respect of the transfer, subsections 85(1) (other than paragraph (e.2)), (1.1), (1.4) and (5) apply, with any modifications that the circumstances require, in respect of the transfer, except that the portion of subsection 85(1) before paragraph (a) shall be read as follows:

“85. (1) Where a taxpayer that is a Canadian affiliate of an entrant bank (within the meanings assigned by subsection 142.7(1)) has, in a taxation year, disposed of any of the taxpayer’s property to the entrant bank (referred to in this subsection as the “corporation”), if the taxpayer and the corporation have jointly elected under subsection 142.7(3), the following rules apply:”.

Marginal note:Deemed fair market value

(4) If a Canadian affiliate of an entrant bank and the entrant bank make an election under subsection (3) in respect of a transfer of property by the Canadian affiliate to the entrant bank, for the purposes of subsections 15(1), 52(2), 69(1), (4) and (5), 246(1) and 247(2) in respect of the transfer, the fair market value of the property is deemed to be the amount agreed by the Canadian affiliate and the entrant bank in their election.

Marginal note:Specified debt obligations

(5) If a Canadian affiliate of an entrant bank transfers a specified debt obligation to the entrant bank in a transaction in respect of which an election is made under subsection (3), the Canadian affiliate is a financial institution in its taxation year in which the transfer is made, and the amount that the Canadian affiliate and the entrant bank agree on in their election in respect of the obligation is equal to the tax basis of the obligation within the meaning assigned by subsection 142.4(1), the entrant bank is deemed, in respect of the obligation, for the purposes of sections 142.2 to 142.4 and 142.6, to be the same corporation as, and a continuation of, the Canadian affiliate.

Marginal note:Mark-to-market property

(6) If a Canadian affiliate of an entrant bank described in paragraph (11)(a) transfers at any time within the period described in paragraph (11)(c) to the entrant bank a property that is, for the Canadian affiliate’s taxation year in which the property is transferred, a mark-to-market property of the Canadian affiliate,

(a) for the purposes of subsections 112(5) to (5.21) and (5.4), the definition “mark-to-market property” in subsection 142.2(1) and subsection 142.5(9), the entrant bank is deemed, in respect of the property, to be the same corporation as and a continuation of, the Canadian affiliate; and

(b) for the purpose of applying subsection 142.5(2) in respect of the property, the Canadian affiliate’s taxation year in which the property is transferred is deemed to have ended immediately before the time the property was transferred.

Marginal note:Reserves

(7) If

(a), at a particular time,

(i) a Canadian affiliate of an entrant bank transfers to the entrant bank property that is a loan or lending asset, or a right to receive an unpaid amount in respect of a disposition before the particular time of property by the affiliate, or

(ii) the entrant bank assumes an obligation of the Canadian affiliate that is an instrument or commitment described in paragraph 20(1)(l.1) or an obligation in respect of goods, services, lands or chattels described in subparagraph 20(1)(m)(i), (ii) or (iii),

(b) the property is transferred or the obligation is assumed for an amount equal to its fair market value at the particular time,

(c) the entrant bank begins immediately after the particular time to use or hold the property or owe the obligation in its Canadian banking business, and

(d) the Canadian affiliate and the entrant bank jointly elect in accordance with subsection (11) to have this subsection apply in respect of the transfer or assumption,

then

(e) in applying paragraphs 20(1)(l), (l.1), (m), (n) and (p) in respect of the obligation or property, the taxation year of the affiliate that would, but for this paragraph, include the particular time is deemed to end immediately before the particular time, and

(f) in computing the income of the Canadian affiliate and the entrant bank for taxation years that end on or after the particular time,

(i) any amount deducted under paragraph 20(1)(l), (l.1), (m) or (n) by the Canadian affiliate in respect of the property or obligation in computing its income for its taxation year that ended immediately before the particular time, or under paragraph 20(1)(p) in computing its income for that year or for a preceding taxation year (to the extent that the amount has not been included in the affiliate’s income under paragraph 12(1)(i)), is deemed to have been so deducted by the entrant bank in computing its income for its last taxation year that ended before the particular time and not to have been deducted by the Canadian affiliate,

(ii) in applying paragraph 20(1)(m), an amount in respect of the goods, services, land or chattels that was included under paragraph 12(1)(a) in computing the Canadian affiliate’s income from a business is deemed to have been so included in computing the entrant bank’s income from its Canadian banking business for a preceding taxation year,

(iii) in applying paragraph 20(1)(n) in respect of a property described in subparagraph (a)(i) and paragraphs (b), (c) and (d) sold by the Canadian affiliate in the course of a business, the property is deemed to have been disposed of by the entrant bank (and not by the Canadian affiliate) at the time it was disposed of by the Canadian affiliate, and the amount in respect of the sale that was included in computing the Canadian affiliate’s income from a business is deemed to have been included in computing the entrant bank’s income from its Canadian banking business for its taxation year that includes the time at which the property was so disposed of, and

(iv) in applying paragraph 40(1)(a) or 44(1)(e) in respect of a property described in subparagraph (a)(i) and paragraphs (b), (c) and (d) disposed of by the Canadian affiliate, the property is deemed to have been disposed of by the entrant bank (and not by the Canadian affiliate) at the time it was disposed of by the Canadian affiliate, the amount determined under subparagraph 40(1)(a)(i) or 44(1)(e)(i) in respect of the Canadian affiliate is deemed to be the amount determined under that subparagraph in respect of the entrant bank, and any amount claimed by the Canadian affiliate under subparagraph 40(1)(a)(iii) or 44(1)(e)(iii) in computing its gain from the disposition of the property for its last taxation year that ended before the particular time is deemed to have been so claimed by the entrant bank for its last taxation year that ended before the particular time.

Marginal note:Assumption of debt obligation

(8) If a Canadian affiliate of an entrant bank described in paragraph (11)(a) transfers at any time within the period described in paragraph (11)(c) property to the entrant bank, and any part of the consideration for the transfer is the assumption by the entrant bank in respect of its Canadian banking business of a debt obligation of the Canadian affiliate,

(a) where the Canadian affiliate and the entrant bank jointly elect in accordance with subsection (11) to have this paragraph apply,

(i) both

(A) the value of that part of the consideration for the transfer of the property, and

(B) for the purpose of determining the consequences of the assumption of the obligation and any subsequent settlement or extinguishment of it, the value of the consideration given to the entrant bank for the assumption of the obligation,

are deemed to be an amount (in this paragraph referred to as the “assumption amount”) equal to the amount outstanding on account of the principal amount of the obligation at that time, and

(ii) the assumption amount shall not be considered a term of the transaction that differs from that which would have been made between persons dealing at arm’s length solely because it is not equal to the fair market value of the obligation at that time;

(b) where the obligation is denominated in a foreign currency, and the Canadian affiliate and the entrant bank jointly elect in accordance with subsection (11) to have this paragraph apply,

(i) the amount of any income, loss, capital gain or capital loss in respect of the obligation due to the fluctuation in the value of the foreign currency relative to Canadian currency realized by

(A) the Canadian affiliate on the assumption of the obligation is deemed to be nil, and

(B) the entrant bank on the settlement or extinguishment of the obligation shall be determined based on the amount of the obligation in Canadian currency at the time it became an obligation of the Canadian affiliate, and

(ii) for the purpose of an election made in respect of the obligation under paragraph (a), the amount outstanding on account of the principal amount of the obligation at that time is the total of all amounts each of which is an amount that was advanced to the Canadian affiliate on account of principal, that remains outstanding at that time, and that is determined using the exchange rate that applied between the foreign currency and Canadian currency at the time of the advance; and

(c) for the purpose of applying paragraphs 20(1)(e) and (f) in respect of the debt obligation, the obligation is deemed not to have been settled or extinguished by virtue of its assumption by the entrant bank and the entrant bank is deemed to be the same corporation as, and a continuation of, the Canadian affiliate.

Marginal note:Branch-establishment dividend

(9) Notwithstanding any other provision of this Act, the rules in subsection (10) apply if

(a) a dividend is paid by a Canadian affiliate of an entrant bank to the entrant bank or to a person that is affiliated with the Canadian affiliate and that is resident in the country in which the entrant bank is resident, or

(b) a dividend is deemed to be paid for the purposes of this Part or Part XIII (other than by paragraph 214(3)(a)) as a result of a transfer of property from the Canadian affiliate to such a person,

and the Canadian affiliate and the entrant bank jointly elect in accordance with subsection (11) to have subsection (10) apply in respect of the dividend.

Marginal note:Treatment of dividend

(10) If the conditions in subsection (9) are met,

(a) the dividend is deemed (except for the purposes of subsections 112(3) to (7)) not to be a taxable dividend; and

(b) there is added to the amount otherwise determined under paragraph 219(1)(g) in respect of the entrant bank for its first taxation year that ends after the time at which the dividend is paid, the amount of the dividend less, where the dividend is paid by means of, or arises as a result of, a transfer of eligible property in respect of which the Canadian affiliate and the entrant bank have jointly elected under subsection (3), the amount by which the fair market value of the property transferred exceeds the amount the Canadian affiliate and the entrant bank have agreed on in their election.

Marginal note:Elections

(11) An election under subsection (3) or (7), paragraph (8)(a) or (b) or subsection (10), (12) or (14) is valid only if

(a) the entrant bank by which the election is made has, on or before the day that is 6 months after the day on which the Income Tax Amendments Act, 2000 receives royal assent, complied with paragraphs 1.1(b) and (c) of the “Guide to Foreign Bank Branching” in respect of the establishment and commencement of business of a foreign bank branch in Canada issued by the Office of the Superintendent of Financial Institutions, as it read on December 31, 2000;

(b) the election is made in prescribed form on or before the earlier of the filing-due date of the Canadian affiliate and the filing-due date of the entrant bank, for the taxation year that includes the time at which

(i) in the case of an election under subsection (3) or (7), paragraph (8)(a) or (b) or subsection (10), the dividend, transfer or assumption to which the election relates is paid, made or effected, or

(ii) in the case of an election under subsection (12), the dissolution order was granted or the winding up commenced; and

(c) in the case of an election under subsection (3) or (7), paragraph (8)(a) or (b) or subsection (10), the dividend, transfer or assumption to which the election relates is paid, made or effected within the period that

(i) begins on the day on which the Superintendent makes an order in respect of the entrant bank under subsection 534(1) of the Bank Act, and

(ii) ends on the later of

(A) the earlier of

(I) the day that is one year after the day referred to subparagraph (i), and

(II) the day that is three years after the day on which the Income Tax Amendments Act, 2000 receives royal assent, and

(B) the day that is one year after the day on which the Income Tax Amendments Act, 2000 receives royal assent.

Marginal note:Winding-up of Canadian affiliate: losses

(12) If

(a) within the period described in paragraph (11)(c) in respect of the entrant bank,

(i) the Minister of Finance has issued letters patent under section 342 of the Bank Act or section 347 of the Trust and Loan Companies Act dissolving the Canadian affiliate or an order under section 345 of the Bank Act or section 350 of the Trust and Loan Companies Act approving the Canadian affiliate’s application for dissolution (such letters patent or order being referred to in this subsection as the “dissolution order”), or

(ii) the affiliate has been wound up under the terms of the corporate law that governs it,

(b) the entrant bank carries on all or part of the business in Canada that was formerly carried on by the Canadian affiliate, and

(c) the Canadian affiliate and the entrant bank jointly elect in accordance with subsection (11) to have this section apply

then in applying section 111 for the purpose of computing the taxable income earned in Canada of the entrant bank for any taxation year that begins after the date of the dissolution order or the commencement of the winding up, as the case may be,

(d) subject to paragraphs (e) and (h), the portion of a non-capital loss of the Canadian affiliate for a taxation year (in this paragraph referred to as the “Canadian affiliate’s loss year”) that can reasonably be regarded as being its loss from carrying on a business in Canada (in this paragraph referred to as the “loss business”) or being in respect of a claim made under section 110.5, to the extent that it

(i) was not deducted in computing the taxable income of the Canadian affiliate or any other entrant bank for any taxation year, and

(ii) would have been deductible in computing the taxable income of the Canadian affiliate for any taxation year that begins after the date of the dissolution order or the commencement of the winding up, as the case may be, on the assumption that it had such a taxation year and that it had sufficient income for that year,

is deemed, for the taxation year of the entrant bank in which the Canadian affiliate’s loss year ended, to be a non-capital loss of the entrant bank from carrying on the loss business (or, in respect of a claim made under section 110.5, to be a non-capital loss of the entrant bank in respect of a claim under subparagraph 115(1)(a)(vii)) that was not deductible by the entrant bank in computing its taxable income earned in Canada for any taxation year that began before the date of the dissolution order or the commencement of the winding up, as the case may be,

(e) if at any time control of the Canadian affiliate or entrant bank has been acquired by a person or group of persons, no amount in respect of the Canadian affiliate’s non-capital loss for a taxation year that ends before that time is deductible in computing the taxable income earned in Canada of the entrant bank for a particular taxation year that ends after that time, except that the portion of the loss that can reasonably be regarded as the Canadian affiliate’s loss from carrying on a business in Canada and, where a business was carried on by the Canadian affiliate in Canada in the earlier year, the portion of the loss that can reasonably be regarded as being in respect of an amount deductible under paragraph 110(1)(k) in computing its taxable income for the year are deductible only

(i) if that business is carried on by the Canadian affiliate or the entrant bank for profit or with a reasonable expectation of profit throughout the particular year, and

(ii) to the extent of the total of the entrant bank’s income for the particular year from that business, and where properties were sold, leased, rented or developed or services rendered in the course of carrying on that business before that time, from any other business substantially all of the income of which was derived from the sale, leasing, rental or development, as the case may be, of similar properties or the rendering of similar services,

and, for the purpose of this paragraph, where subsection 88(1.1) applied to the dissolution of another corporation in respect of which the Canadian affiliate was the parent and paragraph 88(1.1)(e) applied in respect of losses of that other corporation, the Canadian affiliate is deemed to be the same corporation as, and a continuation of, that other corporation with respect to those losses,

(f) subject to paragraphs (g) and (h), a net capital loss of the Canadian affiliate for a taxation year (in this paragraph referred to as the “Canadian affiliate’s loss year”) is deemed to be a net capital loss of the entrant bank for its taxation year in which the Canadian affiliate’s loss year ended to the extent that the loss

(i) was not deducted in computing the taxable income of the Canadian affiliate or any other entrant bank for any taxation year, and

(ii) would have been deductible in computing the taxable income of the Canadian affiliate for any taxation year beginning after the date of the dissolution order or the commencement of the winding-up, as the case may be, on the assumption that the Canadian affiliate had such a taxation year and that it had sufficient income and taxable capital gains for that year,

(g) if at any time control of the Canadian affiliate or the entrant bank has been acquired by a person or group of persons, no amount in respect of the Canadian affiliate’s net capital loss for a taxation year that ends before that time is deductible in computing the entrant bank’s taxable income earned in Canada for a taxation year that ends after that time, and

(h) any loss of the Canadian affiliate that would otherwise be deemed by paragraph (d) or (f) to be a loss of the entrant bank for a particular taxation year that begins after the date of the dissolution order or the commencement of the winding-up, as the case may be, is deemed, for the purpose of computing the entrant bank’s taxable income earned in Canada for taxation years that begin after that date, to be such a loss of the entrant bank for its immediately preceding taxation year and not for the particular year, if the entrant bank so elects in its return of income for the particular year.

Marginal note:Winding-up of Canadian affiliate: stop loss

(13) If a Canadian affiliate and its entrant bank have at any time made a joint election under either of subsection (3) or (12),

(a) in respect of any transfer of property, directly or indirectly, by the Canadian affiliate to the entrant bank or a person with whom the entrant bank does not deal at arm’s length,

(i) subparagraph 13(21.2)(e)(iii) shall be read without reference to clause (E) of that subparagraph,

(ii) subsection 14(12) shall be read without reference to paragraph (g) of that subsection,

(iii) paragraph 18(15)(b) shall be read without reference to subparagraph (iv) of that paragraph, and

(iv) paragraph 40(3.4)(b) shall be read without reference to subparagraph (v) of that paragraph;

(b) in respect of any property of the Canadian affiliate appropriated to or for the benefit of the entrant bank or any person with whom the entrant bank does not deal at arm’s length, section 69(5) shall be read without reference to paragraph (d); and

(c) for the purposes of applying subsection 13(21.2), 14(12), 18(15) and 40(3.4) to any property that was disposed of by the affiliate, after the dissolution or winding-up of the affiliate, the entrant bank is deemed to be the same corporation as, and a continuation of, the affiliate.

Marginal note:Winding-up of Canadian affiliate: SDOs

(14) If a Canadian affiliate of an entrant bank and the entrant bank meet the conditions set out in paragraphs (12)(a) and (b) and jointly elect in accordance with subsection (11) to have this subsection apply, and the Canadian affiliate has not made an election under this subsection with any other entrant bank, the entrant bank is deemed to be the same corporation as, and a continuation of, the Canadian affiliate for the purposes of paragraphs 142.4(4)(c) and (d) in respect of any specified debt obligation disposed of by the Canadian affiliate.

(2) Subsection (1) applies after June 27, 1999.

139. (1) Paragraph (b) of the definition “qualified investment” in subsection 146(1) of the Act is replaced by the following:

(b) a bond, debenture, note or similar obligation

(i) issued by a corporation the shares of which are listed on a prescribed stock exchange in Canada, or

(ii) issued by an authorized foreign bank and payable at a branch in Canada of the bank,

(2) Subsection (1) applies after June 27, 1999.

140. (1) Paragraph (b) of the definition “qualified investment” in subsection 146.1(1) of the Act is replaced by the following:

(b) a bond, debenture, note or similar obligation

(i) issued by a corporation the shares of which are listed on a prescribed stock exchange in Canada, or

(ii) issued by an authorized foreign bank and payable at a branch in Canada of the bank,

(2) Subsection (1) applies after June 27, 1999.

141. (1) Paragraph (b) of the definition “qualified investment” in subsection 146.3(1) of the Act is replaced by the following:

(b) a bond, debenture, note or similar obligation

(i) issued by a corporation the shares of which are listed on a prescribed stock exchange in Canada, or

(ii) issued by an authorized foreign bank and payable at a branch in Canada of the bank,

(2) Subsection (1) applies after June 27, 1999.

142. (1) Subsection 147(10.5) of the Act is repealed.

(2) Subsection (1) applies to shares acquired, but not disposed of, before February 28, 2000 and to shares acquired after February 27, 2000.

143. (1) Paragraph 147.2(4)(a) of the Act is replaced by the following:

Marginal note:Service after 1989

(a) the total of all amounts each of which is a contribution (other than a prescribed contribution) made by the individual in the year to a registered pension plan that is in respect of a period after 1989 or that is a prescribed eligible contribution, to the extent that the contribution was made in accordance with the plan as registered,

(2) Subsection (1) applies to contributions made after 1990.

144. (1) Paragraph 147.3(5)(a) of the Act is replaced by the following:

(a) is a single amount no portion of which relates to an actuarial surplus;

(2) Section 147.3 of the Act is amended by adding the following after subsection (7):

Marginal note:Transfer where money purchase plan replaces money purchase plan

(7.1) An amount is transferred from a registered pension plan (in this subsection referred to as the “transferor plan”) in accordance with this subsection if

(a) the amount is a single amount;

(b) the amount is transferred in respect of the surplus (as defined by regulation) under a money purchase provision (in this subsection referred to as the “former provision”) of the transferor plan;

(c) the amount is transferred directly to another registered pension plan to be held in connection with a money purchase provision (in this subsection referred to as the “current provision”) of the other plan;

(d) the amount is transferred in conjunction with the transfer of amounts from the former provision to the current provision on behalf of all or a significant number of members of the transferor plan whose benefits under the former provision are replaced by benefits under the current provision; and

(e) the transfer is acceptable to the Minister and the Minister has so notified the administrator of the transferor plan in writing.

(3) Paragraphs 147.3(8)(b) and (c) of the Act are replaced by the following:

(b) the amount is transferred in respect of the actuarial surplus under a defined benefit provision of the transferor plan;

(c) the amount is transferred directly to another registered pension plan to be held in connection with a money purchase provision of the other plan;

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

(5) Subsection (2) applies to transfers that occur after 1998.

(6) Subsection (3) applies to transfers that occur after 1990.

145. (1) Paragraphs 149(1)(d) to (d.2) of the Act are replaced by the following:

Marginal note:Corporations owned by the Crown

(d) a corporation, commission or association all of the shares (except directors’ qualifying shares) or of the capital of which was owned by one or more persons each of which is Her Majesty in right of Canada or Her Majesty in right of a province;

Marginal note:Corporations 90% owned by the Crown

(d.1) a corporation, commission or association not less than 90% of the shares (except directors’ qualifying shares) or of the capital of which was owned by one or more persons each of which is Her Majesty in right of Canada or Her Majesty in right of a province;

Marginal note:Wholly-owned corporations

(d.2) a corporation all of the shares (except directors’ qualifying shares) or of the capital of which was owned by one or more persons each of which is a corporation, commission or association to which this paragraph or paragraph (d) applies for the period;

(2) Subparagraph 149(1)(d.3)(i) of the Act is replaced by the following:

(i) one or more persons each of which is Her Majesty in right of Canada or a province or a person to which paragraph (d) or (d.2) applies for the period, or

(3) Paragraph 149(1)(d.4) of the Act is replaced by the following:

Marginal note:Combined ownership

(d.4) a corporation all of the shares (except directors’ qualifying shares) or of the capital of which was owned by one or more persons each of which is a corporation, commission or association to which this paragraph or any of paragraphs (d) to (d.3) applies for the period;

(4) The portion of paragraph 149(1)(d.6) of the Act before subparagraph (i) is replaced by the following:

Marginal note:Subsidiaries of municipal corporations

(d.6) subject to subsections (1.2) and (1.3), a particular corporation all of the shares (except directors’ qualifying shares) or of the capital of which was owned by one or more persons each of which is a corporation, commission or association to which paragraph (d.5) or this paragraph applies for the period if the income for the period of the particular corporation from activities carried on outside

(5) Clause 149(1)(o.2)(ii)(A) of the Act is replaced by the following:

(A) limited its activities to

(I) acquiring, holding, maintaining, improving, leasing or managing capital property that is real property or an interest in real property owned by the corporation, another corporation described by this subparagraph and subparagraph (iv) or a registered pension plan, and

(II) investing its funds in a partnership that limits its activities to acquiring, holding, maintaining, improving, leasing or managing capital property that is real property or an interest in real property owned by the partnership,

(6) Subsection 149(1.1) of the Act is replaced by the following:

Marginal note:Exception

(1.1) Where at a particular time

(a) a corporation, commission or association (in this subsection referred to as “the entity”) would, but for this subsection, be described in any of paragraphs (1)(d) to (d.6),

(b) one or more other persons (other than Her Majesty in right of Canada or a province, a municipality in Canada or a person which, at the particular time, is a person described in any of subparagraphs (1)(d) to (d.6)) have at the particular time one or more rights in equity or otherwise, either immediately or in the future and either absolutely or contingently to, or to acquire, shares or capital of the entity, and

(c) the exercise of the rights referred to in paragraph (b) would result in the entity not being a person described in any of paragraphs (1)(d.1) to (d.6) at the particular time,

the entity is deemed not to be, at the particular time, a person described in any of paragraphs (1)(d) to (d.6).

Marginal note:Election

(1.11) Subsection (1) does not apply in respect of a person’s taxable income for a particular taxation year that begins after 1998 where

(a) paragraph (1)(d) did not apply in respect of the person’s taxable income for the person’s last taxation year that began before 1999;

(b) paragraph (1)(d.2), (d.3) or (d.4) would, but for this subsection, have applied in respect of the person’s taxable income for the person’s first taxation year that began after 1998;

(c) there has been no change in the direct or indirect control of the person during the period that

(i) began at the beginning of the person’s first taxation year that began after 1998, and

(ii) ends at the end of the particular year;

(d) the person elects in writing before 2002 that this subsection apply; and

(e) the person has not notified the Minister in writing before the particular year that the election has been revoked.

(7) Subsection 149(1.2) of the Act is replaced by the following:

Marginal note:Income test

(1.2) For the purposes of paragraphs (1)(d.5) and (d.6), income of a corporation, commission or association from activities carried on outside the geographical boundaries of a municipality does not include income from activities carried on

(a) under an agreement in writing between

(i) the corporation, commission or association, and

(ii) a person who is Her Majesty in right of Canada or a province or a municipality or corporation to which any of paragraphs (1)(d) to (d.6) applies and that is controlled by Her Majesty in right of Canada or a province or by a municipality in Canada

within the geographical boundaries of,

(iii) where the person is Her Majesty in right of Canada or a corporation controlled by Her Majesty in right of Canada, Canada,

(iv) where the person is Her Majesty in right of a province or a corporation controlled by Her Majesty in right of a province, the province, and

(v) where the person is a municipality in Canada or a corporation controlled by a municipality in Canada, the municipality; or

(b) in a province as

(i) a producer of electrical energy or natural gas, or

(ii) a distributor of electrical energy, heat, natural gas or water,

where the activities are regulated under the laws of the province.

(8) Subsections (1) to (4), (6) and (7) apply to taxation years and fiscal periods that begin after 1998 except that,

(a) where a corporation, commission or association so elects in writing and files the election with the Minister of National Revenue on or before the day that is six months after the end of the month in which this Act receives royal assent, the reference to “at a particular time” in subsection 149(1.1) of the Act, as enacted by subsection (6), shall be read as a reference to “at any time after November 1999”; and

(b) an election referred to in subsection 149(1.11) of Act, as enacted by subsection (6), filed with the Minister of National Revenue on or before the day that is six months after the end of the month in which this Act receives royal assent, is deemed to have been filed in accordance with that subsection of the Act.

(9) Subsection (5) applies to taxation years that end after 2000.

146. The portion of subsection 149.1(6.4) of the Act after paragraph (d) is replaced by the following:

applies in prescribed form to the Minister of National Revenue for registration, that Minister may register the organization for the purposes of this Act and, where the organization so applies or is so registered, this section, paragraph 38(a.1), sections 110.1, 118.1, 168, 172, 180 and 230, subsection 241(3.2) and Part V apply, with such modifications as the circumstances require, to the organization as if it were an applicant for registration as a charitable organization or as if it were a registered charity that is designated as a charitable organization, as the case may be.

147. (1) Clause 150(1)(a)(i)(B) of the Act is replaced by the following:

(B) carries on business in Canada, unless the corporation’s only revenue from carrying on business in Canada in the year consists of amounts in respect of which tax was payable by the corporation under subsection 212(5.1),

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

148. (1) Subsection 150.1(5) of the Act is replaced by the following:

Marginal note:Application to other Parts

(5) This section also applies to Parts I.2 to XIII, with such modifications as the circumstances require.

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

149. (1) Paragraph 152(4)(b) of the Act is amended by adding the following after subparagraph (iii):

(iii.1) is made, if the taxpayer is non-resident and carries on a business in Canada, as a consequence of

(A) an allocation by the taxpayer of revenues or expenses as amounts in respect of the Canadian business (other than revenues and expenses that relate solely to the Canadian business, that are recorded in the books of account of the Canadian business, and the documentation in support of which is kept in Canada), or

(B) a notional transaction between the taxpayer and its Canadian business, where the transaction is recognized for the purposes of the computation of an amount under this Act or an applicable tax treaty.

(2) Paragraph 152(6)(c.1) of the Act is replaced by the following:

(c.1) a deduction under section 119 in respect of a disposition in a subsequent taxation year,

(3) Subsection 152(6) of the Act is amended by adding the following after paragraph (f):

(f.1) a deduction under subsection 126(2) in respect of an unused foreign tax credit (within the meaning assigned by subsection 126(7)), or under subsection 126(2.21) or (2.22) in respect of foreign taxes paid, for a subsequent taxation year,

(f.2) a deduction under subsection 128.1(8) as a result of a disposition in a subsequent taxation year,

(4) Section 152 of the Act is amended by adding the following after subsection (6):

Marginal note:Reassessment where amount included in income under subsection 91(1) is reduced

(6.1) Where

(a) a taxpayer has filed for a particular taxation year the return of income required by section 150,

(b) the amount included in computing the taxpayer’s income for the particular year under subsection 91(1) is subsequently reduced because of a reduction in the foreign accrual property income of a foreign affiliate of the taxpayer for a taxation year of the affiliate that ends in the particular year and is

(i) attributable to the amount prescribed to be the deductible loss of the affiliate for the year that arose in a subsequent year of the affiliate that ends in a subsequent taxation year of the taxpayer, and

(ii) included in the description of F of the definition “foreign accrual property income” in subsection 95(1) in respect of the affiliate for the year, and

(c) the taxpayer has filed with the Minister, on or before the filing-due-date for the taxpayer’s subsequent taxation year, a prescribed form amending the return,

the Minister shall reassess the taxpayer’s tax for any relevant taxation year (other than a taxation year preceding the particular taxation year) in order to take into account the reduction in the amount included under subsection 91(1) in computing the income of the taxpayer for the year.

(5) Section 152 of the Act is amended by adding the following after subsection (9):

Marginal note:Where tax deemed not to be assessed

(10) Notwithstanding any other provision of this section, an amount of tax for which adequate security is accepted by the Minister under subsection 220(4.5) or (4.6) is, until the end of the period during which the security is accepted by the Minister, deemed for the purpose of any agreement entered into by or on behalf of the Government of Canada under section 7 of the Federal-Provincial Fiscal Arrangements Act not to have been assessed under this Act.

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

(7) Subsections (2), (3) and (5) apply to taxation years that end after October 1, 1996.

(8) In respect of

(a) a deduction under section 119 of the Act, as enacted by subsection 102(2), or an adjustment under subsection 128.1(8) of the Act, as enacted by subsection 123(5), in respect of a disposition by a taxpayer, or

(b) a deduction under subsection 126(2.21) or (2.22) of the Act, as enacted by subsection 117(6), in respect of foreign taxes paid by a taxpayer,

the taxpayer is deemed to have filed the prescribed form described in subsection 152(6) of the Act in a timely manner if the taxpayer files the form with the Minister of National Revenue on or before the later of the day on or before which the taxpayer would, but for this subsection, be required to file the form and the taxpayer’s filing-due date for the taxation year that includes the day on which this Act receives royal assent.

(9) Subsection (4) applies to taxation years of foreign affiliates that begin after November 1999.

150. (1) Subsection (2) applies in respect of an individual if, at any particular time after October 1, 1996 and before the day that is two years before the day on which this Act receives royal assent,

(a) the individual ceased to be resident in Canada; or

(b) where the individual is a trust, the trust made a distribution of property to which subsection 107(2) of the Act does not apply solely because of the application of subsection 107(5) of the Act, as enacted by subsection 80(18).

(2) Where this subsection applies in respect of an individual, for the purposes of any reassessment of the individual’s tax, interest or penalties, for any year, that is necessary to take into account the application of this Act in respect of the cessation of residence or the distribution referred to in subsection (1), the individual’s normal reassessment period under subsection 152(3.1) of the Act for any taxation year that ends at or after the particular time described in subsection (1) is, notwithstanding subsection 152(3.1) of the Act, deemed to end on the later of

(a) the day on which the normal reassessment period for the year would, but for this section, end; and

(b) the day that is one year after the day on which this Act receives royal assent.

151. (1) Paragraph 153(1)(a) of the Act is replaced by the following:

(a) salary, wages or other remuneration, other than amounts described in subsection 212(5.1),

(2) Paragraph 153(1)(g) of the Act is replaced by the following:

(g) fees, commissions or other amounts for services, other than amounts described in subsection 212(5.1),

(3) The portion of subsection 153(1) of the Act after paragraph (t) is replaced by the following:

shall deduct or withhold from the payment the amount determined in accordance with prescribed rules and shall, at the prescribed time, remit that amount to the Receiver General on account of the payee’s tax for the year under this Part or Part XI.3, as the case may be, and, where at that prescribed time the person is a prescribed person, the remittance shall be made to the account of the Receiver General at a designated financial institution.

(4) Section 153 of the Act is amended by adding the following after subsection (5):

Meaning of “designated financial institution”

(6) In this section, “designated financial institution” means a corporation that

(a) is a bank, other than an authorized foreign bank that is subject to the restrictions and requirements referred to in subsection 524(2) of the Bank Act;

(b) is authorized under the laws of Canada or a province to carry on the business of offering its services as a trustee to the public; or

(c) is authorized under the laws of Canada or a province to accept deposits from the public and carries on the business of lending money on the security of real estate or investing in mortgages or hypothecs on real estate.

(5) Subsections (1) and (2) apply in respect of amounts paid, credited or provided after 2000.

(6) Subsections (3) and (4) apply after June 27, 1999.

152. (1) The description of A in paragraph (b) of the definition “net tax owing” in subsection 156.1(1) of the Act is replaced by the following:


is the total of the taxes payable under this Part and Parts I.2 and X.5 by the individual for the year,

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

153. (1) Subparagraph 157(1)(a)(i) of the Act is replaced by the following:

(i) on or before the last day of each month in the year, an amount equal to 1/12 of the total of the amounts estimated by it to be the taxes payable by it under this Part and Parts I.3, VI, VI.1 and XIII.1 for the year,

(2) The portion of paragraph 157(1)(b) of the Act before subparagraph (i) is replaced by the following:

(b) the remainder of the taxes payable by it under this Part and Parts I.3, VI, VI.1 and XIII.1 for the year

(3) Subsection 157(2.1) of the Act is replaced by the following:

Marginal note:$1,000 threshold

(2.1) Where

(a) the total of the taxes payable under this Part and Parts I.3, VI, VI.1 and XIII.1 by a corporation for a taxation year (determined before taking into consideration the specified future tax consequences for the year), or

(b) the corporation’s first instalment base for the year,

is not more than $1,000, the corporation may, instead of paying the instalments required for the year by paragraph (1)(a), pay to the Receiver General, under paragraph (1)(b), the total of the taxes payable by it under this Part and Parts I.3, VI, VI.1 and XIII.1 for the year.

(4) Subsections (1) to (3) apply to the 2001 and subsequent taxation years.

154. (1) Subsections 159(4) and (4.1) of the Act are repealed.

(2) Subsection 159(6.1) of the Act is replaced by the following:

Marginal note:Election where subsection 104(4) applicable

(6.1) Where a time determined under paragraph 104(4)(a), (a.1), (a.2), (a.3), (a.4), (b) or (c) in respect of a trust occurs in a taxation year of the trust and the trust so elects and furnishes to the Minister security acceptable to the Minister for payment of any tax the payment of which is deferred by the election, notwithstanding any other provision of this Part respecting the time within which payment shall be made of the tax payable under this Part by the trust for the year, all or any portion of the part of that tax that is equal to the amount, if any, by which that tax exceeds the amount that that tax would be if this Act were read without reference to paragraph 104(4)(a), (a.1), (a.2), (a.3), (a.4), (b) or (c), as the case may be, may be paid in the number (not exceeding 10) of equal consecutive annual instalments that is specified by the trust in the election, the first instalment of which shall be paid on or before the day on or before which payment of that tax would, but for the election, have been required to be made and each subsequent instalment of which shall be paid on or before the next following anniversary of that day.

(3) Subsection (1) applies to individuals who cease to be resident in Canada after October 1, 1996.

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

155. (1) Paragraph 161(7)(a) of the Act is amended by adding the following before subparagraph (ii):

(i) any amount deducted under section 119 in respect of a disposition in a subsequent taxation year,

(2) Subparagraph 161(7)(a)(iv.1) of the Act is replaced by the following:

(iv.1) any amount deducted under subsection 126(2) in respect of an unused foreign tax credit (within the meaning assigned by subsection 126(7)), or under subsection 126(2.21) or (2.22) in respect of foreign taxes paid, for a subsequent taxation year,

(3) Paragraph 161(7)(a) of the Act is amended by striking out the word “and” at the end of subparagraph (ix) and by adding the following after subparagraph (x):

(xi) any amount deducted under any of subsections 128.1(6) to (8) from the taxpayer’s proceeds of disposition of a property because of an election made in a return of income for a subsequent taxation year; and

(4) Subsections (1) to (3) apply to taxation years that end after October 1, 1996.

156. (1) Paragraphs 164(1)(a) and (b) of the Act are replaced by the following:

(a) may,

(i) before mailing the notice of assessment for the year, where the taxpayer is a qualifying corporation (as defined in subsection 127.1(2)) and claims in its return of income for the year to have paid an amount on account of its tax payable under this Part for the year because of subsection 127.1(1) in respect of its refundable investment tax credit (as defined in subsection 127.1(2)), refund all or part of any amount claimed in the return as an overpayment for the year, not exceeding the amount by which the total determined under paragraph (f) of the definition “refundable investment tax credit” in subsection 127.1(2) in respect of the taxpayer for the year exceeds the total determined under paragraph (g) of that definition in respect of the taxpayer for the year,

(ii) before mailing the notice of assessment for the year, where the taxpayer is a qualified corporation (as defined in subsection 125.4(1)) or an eligible production corporation (as defined in subsection 125.5(1)) and an amount is deemed under subsection 125.4(3) or 125.5(3) to have been paid on account of its tax payable under this Part for the year, refund all or part of any amount claimed in the return as an overpayment for the year, not exceeding the total of those amounts so deemed to have been paid, and

(iii) on or after mailing the notice of assessment for the year, refund any overpayment for the year, to the extent that the overpayment was not refunded pursuant to subparagraph (i) or (ii); and

(b) shall, with all due dispatch, make the refund referred to in subparagraph (a)(iii) after mailing the notice of assessment if application for it is made in writing by the taxpayer within the period within which the Minister would be allowed under subsection 152(4) to assess tax payable under this Part by the taxpayer for the year if that subsection were read without reference to paragraph 152(4)(a).

(2) Subsection 164(5) of the Act is amended by adding the following after paragraph (a):

(a.1) any amount deducted under section 119 in respect of the disposition of a taxable Canadian property in a subsequent taxation year,

(3) Paragraph 164(5)(e) of the Act is replaced by the following:

(e) the deduction of an amount under subsection 126(2) in respect of an unused foreign tax credit (within the meaning assigned by subsection 126(7)), or under subsection 126(2.21) or (2.22) in respect of foreign taxes paid, for a subsequent taxation year,

(4) Subsection 164(5) of the Act is amended by adding the following after paragraph (h.01):

(h.02) the deduction under any of subsections 128.1(6) to (8) of an amount from the taxpayer’s proceeds of disposition of a property, because of an election made in a return of income for a subsequent taxation year,

(5) Subsection 164(5.1) of the Act is replaced by the following:

Marginal note:Interest — disputed amounts

(5.1) Where a portion of a repayment made under subsection (1.1) or (4.1), or an amount applied under subsection (2) in respect of a repayment, can reasonably be regarded as being in respect of a claim made by the taxpayer in an objection to or appeal from an assessment of tax for a taxation year for a deduction or exclusion described in subsection (5) in respect of a subsequent taxation year, interest shall not be paid or applied on the portion for any part of a period that is before the latest of the dates described in paragraphs (5)(i) to (l).

(6) Subparagraph 164(6.1)(a)(iii) of the Act is amended by replacing the reference to the fraction “1/4” with a reference to the fraction “1/2”.

(7) Subsection (1) applies to the 1999 and subsequent taxation years.

(8) Subsections (2) to (5) apply to taxation years that end after October 1, 1996.

(9) Subsection (6) applies to deaths that occur after February 27, 2000 except that, for deaths that occurred after February 27, 2000 and before October 18, 2000, the reference to the fraction “1/2” in subparagraph 164(6.1)(a)(iii) of the Act, as enacted by subsection (6), shall be read as a reference to the fraction “1/3”.

157. (1) Subsection 165(2.1) of the Act is replaced by the following:

Marginal note:Application

(2.1) Notwithstanding any other provision of this Act, paragraph (1)(a) shall apply only in respect of assessments, determinations and redeterminations under this Part and Part I.2.

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

158. (1) Section 169 of the Act is amended by adding the following after subsection (1):

Marginal note:Ecological gifts

(1.1) Where at any particular time a taxpayer has disposed of a property, the fair market value of which has been confirmed or redetermined by the Minister of the Environment under subsection 118.1(10.4), the taxpayer may, within 90 days after the day on which that Minister has issued a certificate under subsection 118.1(10.5), appeal the confirmation or redetermination to the Tax Court of Canada.

(2) Subsection (1) applies in respect of gifts made after February 27, 2000 except that, where a certificate has been issued under subsection 118.1(10.5) of the Act, as enacted by subsection 94(7), before this Act receives royal assent, subsection 169(1.1) of the Act, as enacted by subsection (1), shall be read as follows:

(1.1) Where at any particular time a taxpayer has disposed of a property, the fair market value of which has been confirmed or redetermined by the Minister of the Environment under subsection 118.1(10.4), the taxpayer may, within 90 days after the day on which the Income Tax Amendments Act, 2000 receives royal assent, appeal the confirmation or redetermination to the Tax Court of Canada.

159. (1) Section 171 of the Act is amended by adding the following after subsection (1):

Marginal note:Ecological gifts

(1.1) On an appeal under subsection 169(1.1), the Tax Court of Canada may confirm or vary the amount determined to be the fair market value of a property and the value determined by the Court is deemed to be the fair market value of the property determined by the Minister of the Environment.

(2) Subsection (1) applies in respect of gifts made after February 27, 2000.

160. (1) Subsection 180.1(1) of the Act is replaced by the following:

Marginal note:Individual surtax

180.1 (1) Every individual shall pay a tax under this Part for each taxation year equal to 5% of the amount, if any, by which the tax payable under Part I by the individual for the year exceeds $15,500.

(2) Subsection 180.1(2) of the Act is replaced by the following:

Marginal note:Former resident credit for tax paid

(1.4) There may be deducted from the tax otherwise payable under this Part by an individual for a taxation year (computed without reference to subsections (1.1) and (1.2)) the amount, if any, by which

(a) the amount that would be deductible under section 119 in computing the individual’s tax payable under Part I for the year if, in applying for that purpose paragraph (a) of the definition “tax for the year otherwise payable under this Part” in subsection 126(7), the reference in that paragraph to “tax payable under this Part for the year” were read as a reference to “the total of taxes that, but for subsections 180.1(1.1), (1.2) and (1.4), would be payable under this Part and Part I.1 for the year”

exceeds

(b) the amount deductible under section 119 in computing the individual’s tax payable under Part I for the year.

Marginal note:Meaning of tax payable under Part I

(2) For the purposes of subsection (1), the tax payable under Part I by an individual for a taxation year is the amount, if any, by which

(a) the amount that would be the individual’s tax payable under that Part for the year if that Part were read without reference to section 119, subsection 120(1) and sections 122.3, 126, 127, 127.4 and 127.54

exceeds

(b) if the individual was throughout the year a mutual fund trust, the least of the amounts determined under paragraphs (a), (b) and (c) of the description of A in the definition “refundable capital gains tax on hand” in subsection 132(4) in respect of the trust for the year, and

(c) in any other case, nil.

(3) Subsection (1) applies to the 2000 taxation year.

(4) Subsection (2) applies after October 1, 1996.

161. (1) Part I.1 of the Act is repealed.

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

162. (1) The formula in subparagraph 180.2(4)(a)(ii) of the Act is replaced by the following:

(0.0125A – $665)(1 – B)

(2) Subsection (1) applies to amounts paid after November 1999.

163. (1) The portion of paragraph 181.3(3)(a) of the Act before subparagraph (i) is replaced by the following:

(a) in the case of a financial institution, other than an authorized foreign bank or an insurance corporation, the amount, if any, by which the total at the end of the year of

(2) Subsection 181.3(3) of the Act is amended by striking out the word “and” at the end of paragraph (c), by adding the word “and” at the end of paragraph (d) and by adding the following after paragraph (d):

(e) in the case of an authorized foreign bank, the total of

(i) 10% of the total of all amounts, each of which is the risk-weighted amount at the end of the year of an on-balance sheet asset or an off-balance sheet exposure of the bank in respect of its Canadian banking business that the bank would be required to report under the OSFI risk-weighting guidelines if those guidelines applied and required a report at that time, and

(ii) the total of all amounts, each of which is an amount at the end of the year in respect of the bank’s Canadian banking business that

(A) if the bank were a bank listed in Schedule II to the Bank Act, would be required under the risk-based capital adequacy guidelines issued by the Superintendent of Financial Institutions and applicable at that time to be deducted from the bank’s capital in determining the amount of capital available to satisfy the Superintendent’s requirement that capital equal a particular proportion of risk-weighted assets and exposures, and

(B) is not an amount in respect of a loss protection facility required to be deducted from capital under the Superintendent’s guidelines respecting asset securitization applicable at that time.

(3) Subsection 181.3(4) of the Act is replaced by the following:

Marginal note:Investment allowance of financial institution

(4) The investment allowance for a taxation year of a corporation that is a financial institution is

(a) in the case of a corporation that was resident in Canada at any time in the year, the total of all amounts each of which is the carrying value at the end of the year of an eligible investment of the corporation;

(b) in the case of an insurance corporation that was throughout the year not resident in Canada, the total of all amounts each of which is the carrying value at the end of the year of an eligible investment of the corporation that was used or held by it in the year in the course of carrying on an insurance business in Canada;

(c) in the case of an authorized foreign bank, the total of all amounts each of which is the amount at the end of the year, before the application of risk weights, that the bank would be required to report under the OSFI risk-weighting guidelines if those guidelines applied and required a report at that time, of an eligible investment used or held by the bank in the year in the course of carrying on its Canadian banking business; and

(d) in any other case, nil.

Marginal note:Interpretation

(5) For the purpose of subsection (4),

(a) an eligible investment of a corporation is a share of the capital stock or long-term debt (and, where the corporation is an insurance corporation, is non-segregated property within the meaning assigned by subsection 138(12)) of a financial institution that at the end of the year

(i) is related to the corporation,

(ii) is not exempt from tax under this Part, and

(iii) is resident in Canada or can reasonably be regarded as using the proceeds of the share or debt in a business carried on by the institution through a permanent establishment (as defined by regulation) in Canada; and

(b) a credit union and another credit union of which the credit union is a shareholder or member are deemed to be related to each other.

(4) Subsections (1) to (3) apply after June 27, 1999, except that in its application to taxpayers other than authorized foreign banks for taxation years that end before 2002, paragraph 181.3(5)(a) of the Act, as enacted by subsection (3), shall be read without reference to subparagraph (iii).

164. (1) Section 186 of the Act is amended by adding the following after subsection (6):

Marginal note:Interpretation

(7) For greater certainty, where a provision of this Act or the regulations indicates that the term “connected” has the meaning assigned by subsection 186(4), that meaning shall be determined by taking into account the application of subsection 186(2) unless the provision expressly provides otherwise.

(2) Subject to subsection (3), subsection (1) applies on and after March 16, 2001.

(3) Subsection (1) does not apply for the purposes of applying the Act on and after March 16, 2001 with respect to actions or transactions of a taxpayer required to be carried out under an agreement in writing made by the taxpayer before March 16, 2001 if the taxpayer elects in writing that this subsection apply by filing the election including a copy of the agreement with the Minister of National Revenue before the day that is 60 days after the day on which this Act receives royal assent.

165. (1) The description of C in subsection 190.1(1.1) of the Act is replaced by the following:


is the number of days in the year that are after February 25, 1992 and before 2001.

(2) Subsection (1) applies to taxation years that end after 1998.

166. (1) The portion of paragraph 190.13(a) of the Act before subparagraph (i) is replaced by the following:

(a) in the case of a financial institution, other than an authorized foreign bank or a life insurance corporation, the amount, if any, by which the total at the end of the year of

(2) Section 190.13 of the Act is amended by striking out the word “and” at the end of paragraph (b), by adding the word “and” at the end of paragraph (c) and by adding the following after paragraph (c):

(d) in the case of an authorized foreign bank, the total of

(i) 10% of the total of all amounts, each of which is the risk-weighted amount at the end of the year of an on-balance sheet asset or an off-balance sheet exposure of the bank in respect of its Canadian banking business that the bank would be required to report under the OSFI risk-weighting guidelines if those guidelines applied and required a report at that time, and

(ii) the total of all amounts, each of which is an amount at the end of the year in respect of the bank’s Canadian banking business that

(A) if the bank were a bank listed in Schedule II to the Bank Act, would be required under the risk-based capital adequacy guidelines issued by the Superintendent of Financial Institutions and applicable at that time to be deducted from the bank’s capital in determining the amount of capital available to satisfy the Superintendent’s requirement that capital equal a particular proportion of risk-weighted assets and exposures, and

(B) is not an amount in respect of a loss protection facility required to be deducted from capital under the Superintendent’s guidelines respecting asset securitization applicable at that time.

(3) Subsections (1) and (2) apply after June 27, 1999.

167. (1) Section 190.14 of the Act is replaced by the following:

Marginal note:Investment in related institutions

190.14 (1) A corporation’s investment for a taxation year in a financial institution related to it is

(a) in the case of a corporation that was resident in Canada at any time in the year, the total of all amounts each of which is the carrying value (or in the case of contributed surplus, the amount) at the end of the year of an eligible investment of the corporation in the financial institution;

(b) in the case of a life insurance corporation that was non-resident throughout the year, the total of all amounts each of which is the carrying value (or is, in the case of contributed surplus, the amount) at the end of the year of an eligible investment of the corporation in the financial institution that was used or held by the corporation in the year in the course of carrying on an insurance business in Canada (or that, in the case of contributed surplus, was contributed by the corporation in the course of carrying on that business); and

(c) in the case of a corporation that is an authorized foreign bank, the total of all amounts each of which is the amount at the end of the year, before the application of risk weights, that would be required to be reported under the OSFI risk-weighting guidelines if those guidelines applied and required a report at that time, of an eligible investment of the corporation in the financial institution that was used or held by the corporation in the year in the course of carrying on its Canadian banking business or, in the case of an eligible investment that is contributed surplus of the financial institution at the end of the year, the amount of the surplus contributed by the corporation in the course of carrying on that business.

Marginal note:Interpretation

(2) For the purpose of subsection (1), an eligible investment of a corporation in a financial institution is a share of the capital stock or long-term debt (and, where the corporation is an insurance corporation, is non-segregated property within the meaning assigned by subsection 138(12)) of the financial institution or any surplus of the financial institution contributed by the corporation (other than an amount otherwise included as a share or debt) if the financial institution at the end of the year is

(a) related to the corporation; and

(b) resident in Canada or can reasonably be regarded as using the surplus or the proceeds of the share or debt in a business carried on by the financial institution through a permanent establishment (as defined by regulation) in Canada.

(2) Subsection (1) applies after June 27, 1999 except that, in its application to taxpayers other than authorized foreign banks for taxation years that end before 2002, subsection 190.14(2) of the Act, as enacted by subsection (1), shall be read without reference to paragraph (b).

168. (1) Paragraph (a) of the definition “qualified investment” in section 204 of the Act is replaced by the following:

(a) money (other than money the fair market value of which exceeds its stated value as legal tender in the country of issuance or money that is held for its numismatic value) and deposits (within the meaning assigned by the Canada Deposit Insurance Corporation Act or with a branch in Canada of a bank) of such money standing to the credit of the trust,

(2) Paragraph (c) of the definition “qualified investment” in section 204 of the Act is replaced by the following:

(c) bonds, debentures, notes or similar obligations (other than those described in paragraph 147(2)(c))

(i) issued by a corporation the shares of which are listed on a prescribed stock exchange in Canada, or

(ii) issued by an authorized foreign bank and payable at a branch in Canada of the bank,

(3) Subsections (1) and (2) apply after June 27, 1999 except that, before 2003, paragraph (a) of the definition “qualified investment” in section 204 of the Act, as enacted by subsection (1), shall be read as follows:

(a) money (other than money the fair market value of which exceeds its stated value as legal tender in the country of issuance or money that is held for its numismatic value) and deposits (within the meaning assigned by the Canada Deposit Insurance Corporation Act or with a bank listed in Schedule I or II to the Bank Act or with a branch in Canada of an authorized foreign bank) of such money standing to the credit of the trust,

169. (1) Paragraph (g) of the definition “foreign property” in subsection 206(1) of the Act is replaced by the following:

(g) indebtedness of a non-resident person, other than

(i) indebtedness issued by an authorized foreign bank and payable at a branch in Canada of the bank, or

(ii) indebtedness issued or guaranteed by

(A) the International Bank for Reconstruction and Development,

(B) the International Finance Corporation,

(C) the Inter-American Development Bank,

(D) the Asian Development Bank,

(E) the Caribbean Development Bank,

(F) the European Bank for Reconstruction and Development,

(G) the African Development Bank, or

(H) a prescribed person,

(2) Subsection 206(1) of the Act is amended by adding the following in alphabetical order:

“cost amount”

« coût indiqué »

“cost amount” at any time of a taxpayer’s capital interest in a trust that is foreign property is deemed to be the greater of

(a) the cost amount of the interest, determined without reference to this definition, and

(b) where that time is more than 60 days after the end of a taxation year of the trust, the amount that would be the cost amount of the interest if new units of the trust had been issued in satisfaction of each amount payable

(i) after 2000 and at or before the end of the taxation year, by the trust in respect of the interest,

(ii) to which subparagraph 53(2)(h)(i.1) applies (or would apply if that subparagraph were read without reference to clauses (A) and (B) of that subparagraph), and

(iii) that has not been satisfied at or before that time by the issue of new units of the trust or by a payment of an amount by the trust;

(3) Subsection 206(3.1) of the Act is replaced by the following:

Marginal note:Acquisition of qualifying security

(3.1) For the purpose of applying subparagraph (2)(a)(iii) at or after a particular time, where a qualifying security in relation to another security is acquired at the particular time by the taxpayer referred to in subsection (3.2) in respect of the security, and the security is foreign property at that time,

(a) the qualifying security is deemed to have been last acquired by the taxpayer at the time the other security was last acquired by the taxpayer;

(b) where the other security was not foreign property immediately before the particular time, the qualifying security is deemed to have become foreign property at the particular time; and

(c) where the other security was foreign property immediately before the particular time, the qualifying security is deemed to have become foreign property at the time the other security became foreign property.

Marginal note:Qualifying security

(3.2) For the purpose of subsection (3.1), a qualifying security in relation to another security means

(a) a security issued at any time by a corporation to a taxpayer

(i) in exchange for another security acquired before that time by the taxpayer, and

(ii) in the course of

(A) a corporate merger or reorganization of capital,

(B) a transaction or series of transactions in which control of the corporation that issued the other security is acquired by a person or group of persons, or

(C) a transaction or series of transactions in which all or substantially all of the issued and outstanding shares (other than shares held immediately before the transaction or the beginning of the series by a particular person or related group) of the corporation that issued the other security are acquired by the particular person or related group; or

(b) a security acquired by a taxpayer from a corporation pursuant to a distribution with respect to another security that is an eligible distribution described in subsection 86.1(2).

(4) Subsection 206(4) of the Act is replaced by the following:

Marginal note:Non-arm’s length transactions

(4) For the purposes of this Part, where at any time a taxpayer acquires property, otherwise than pursuant to a transfer of property to which paragraph (f) or (g) of the definition “disposition” in subsection 248(1) applies, from a person with whom the taxpayer does not deal at arm’s length for no consideration or for consideration less than the fair market value of the property at that time, the taxpayer is deemed to acquire the property at that fair market value, and for those purposes, a particular trust is deemed not to deal at arm’s length with another trust if a person who is beneficially interested in the particular trust is at that time also beneficially interested in the other trust.

(5) Subsection (1) applies after June 27, 1999.

(6) Subsection (2) applies to months that end after February 2001.

(7) Subsection (3) applies to months that end after 1997.

(8) Subsection (4) applies in respect of property acquired after December 23, 1998.

170. (1) Section 207.31 of the Act is replaced by the following:

Marginal note:Tax payable by recipient of an ecological gift

207.31 Any charity or municipality that at any time in a taxation year, without the authorization of the Minister of the Environment or a person designated by that Minister, disposes of or changes the use of a property described in paragraph 110.1(1)(d) or in the definition “total ecological gifts” in subsection 118.1(1) and given to the charity or municipality after February 27, 1995 shall, in respect of the year, pay a tax under this Part equal to 50% of the amount that would be determined for the purposes of section 110.1 or 118.1, if this Act were read without reference to subsections 110.1(3) and 118.1(6), to be the fair market value of the property if the property were given to the charity or municipality immediately before the disposition or change.

(2) Subsection (1) applies in respect of dispositions or changes of use that occur after November 1999.

171. (1) Paragraph 210.1(d) of the Act is replaced by the following:

(d) a trust described in paragraph (a), (a.1) or (c) of the definition “trust” in subsection 108(1); or

(2) Subsection (1) applies to the 1999 and subsequent taxation years.

172. (1) Paragraph 210.2(2)(b) of the Act is replaced by the following:

(b) the only taxable capital gains and allowable capital losses referred to in paragraph 3(b) were from dispositions of taxable Canadian property; and

(2) Subsection (1) applies after October 1, 1996.

173. (1) Subclause 212(1)(b)(ii)(C)(IV) of the Act is replaced by the following:

(IV) of a corporation, commission or association to which any of paragraphs 149(1)(d) to (d.6) applies, or

(2) Subparagraph 212(1)(c)(i) of the Act is replaced by the following:

(i) is included in computing the income of the non-resident person under subsection 104(13), except to the extent that the amount is deemed by subsection 104(21) to be a taxable capital gain of the non-resident person, or

(3) Section 212 of the Act is amended by adding the following after subsection 212(5):

Marginal note:Acting services

(5.1) Notwithstanding any regulation made under paragraph 214(13)(c), every person who is either a non-resident individual who is an actor or that is a corporation related to such an individual shall pay an income tax of 23% on every amount paid or credited, or provided as a benefit, to or on behalf of the person for the provision in Canada of the acting services of the actor in a film or video production.

Marginal note:Relief from double taxation

(5.2) Where a corporation is liable to tax under subsection (5.1) in respect of an amount for acting services of an actor (in this subsection referred to as the “corporation payment”) and the corporation pays, credits or provides as a benefit to the actor an amount for those acting services (in this subsection referred to as the “actor payment”), no tax is payable under subsection (5.1) with respect to the actor payment except to the extent that it exceeds the corporation payment.

Marginal note:Reduction of withholding

(5.3) If the Minister is satisfied that the deduction or withholding otherwise required by section 215 from an amount described in subsection (5.1), would cause undue hardship, the Minister may determine a lesser amount to be deducted or withheld and that lesser amount is deemed to be the amount so required to be deducted or withheld.

(4) Subsection 212(13.1) of the Act is amended by striking out the word “and” at the end of paragraph (a) and by adding the following after paragraph (a):

(a.1) where a partnership pays, credits or provides to a non-resident person an amount described in subsection (5.1), the partnership is deemed in respect of the amount to be a person; and

(5) Section 212 of the Act is amended by adding the following after subsection (13.2):

Marginal note:Application of Part XIII to authorized foreign bank

(13.3) An authorized foreign bank is deemed to be resident in Canada for the purposes of

(a) this Part, in respect of any amount paid or credited to or by the bank in respect of its Canadian banking business; and

(b) the application in paragraph (13.1)(b) of the definition “Canadian partnership” in respect of a partnership interest held by the bank in the course of its Canadian banking business.

(6) Subsection (1) applies to amounts paid or credited after 1998.

(7) Subsection (2) applies to amounts paid or credited after December 17, 1999.

(8) Subsections (3) and (4) apply to amounts paid, credited or provided after 2000.

(9) Subsection (5) applies after June 27, 1999.

174. (1) Subsection 215(1) of the Act is replaced by the following:

Marginal note: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 Part were read without reference 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 215(5) of the Act is replaced by the following:

Marginal note:Regulations reducing deduction or withholding

(5) The Governor in Council may make regulations in respect of any non-resident person or class of non-resident persons to whom any amount is paid or credited as, on account of, in lieu of payment of or in satisfaction of, any amount described in any of paragraphs 212(1)(h), (j) to (m) and (q) reducing the amount otherwise required by any of subsections (1) to (3) to be deducted or withheld from the amount so paid or credited.

(3) Subsection (1) applies to amounts paid, credited or provided after 2000.

(4) Subsection (2) applies after April 1997.

175. (1) The Act is amended by adding the following after section 216:

Marginal note:Alternative re: acting services

216.1 (1) No tax is payable under this Part on any amount described in subsection 212(5.1) that is paid, credited or provided to a non-resident person in a taxation year if the person

(a) files with the Minister, on or before the person’s filing-due date for the year, a return of income under Part I for the year; and

(b) elects in the return to have this section apply for the year.

Marginal note:Deemed Part I payment

(2) If in respect of a particular amount paid, credited or provided in a taxation year, a non-resident person has complied with paragraphs (1)(a) and (b), any amount deducted or withheld and remitted to the Receiver General on behalf of the person on account of tax under subsection 212(5.1) in respect of the particular amount is deemed to have been paid on account of the person’s tax under Part I.

Marginal note:Deemed election and restriction

(3) Where a corporation payment (within the meaning assigned by subsection 212(5.2)) has been made to a non-resident corporation in respect of an actor and at any time the corporation makes an actor payment (within the meaning assigned by subsection 212(5.2)) to or for the benefit of the actor, if the corporation makes an election under subsection (1) for the taxation year in which the corporation payment is made, the actor is deemed to make an election under subsection (1) for the taxation year of the actor in which the corporation makes the actor payment.

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

176. (1) The Act is amended by adding the following after section 218.1:

PART XIII.1 ADDITIONAL TAX ON AUTHORIZED FOREIGN BANKS

Marginal note:Branch interest tax

218.2 (1) Every authorized foreign bank shall pay a tax under this Part for each taxation year equal to 25% of its taxable interest expense for the year.

Marginal note:Taxable interest expense

(2) The taxable interest expense of an authorized foreign bank for a taxation year is 15% of the amount, if any, by which

(a) the total of all amounts on account of interest that are deducted under section 20.2 in computing the bank’s income for the year from its Canadian banking business

exceeds

(b) the total of all amounts that are included in paragraph (a) and that are in respect of a liability of the bank to another person or partnership.

Marginal note:Where tax not payable

(3) No tax is payable under this Part for a taxation year by an authorized foreign bank if

(a) the bank is resident in a country with which Canada has a tax treaty at the end of the year; and

(b) no tax similar to the tax under this Part would be payable in that country for the year by a bank resident in Canada carrying on business in that country during the year.

Marginal note:Rate limitation

(4) Notwithstanding any other provision of this Act, the reference in subsection (1) to 25% shall, in respect of a taxation year of an authorized foreign bank that is resident in a country with which Canada has a tax treaty on the last day of the year, be read as a reference to,

(a) if the treaty specifies the maximum rate of tax that Canada may impose under this Part for the year on residents of that country, that rate;

(b) if the treaty does not specify a maximum rate as described in paragraph (a) but does specify the maximum rate of tax that Canada may impose on a payment of interest in the year by a person resident in Canada to a related person resident in that country, that rate; and

(c) in any other case, 25%.

Marginal note:Provisions applicable to Part

(5) Sections 150 to 152, 158, 159, 160.1 and 161 to 167 and Division J of Part I apply to this Part with any modifications that the circumstances require.

(2) Subsection (1) applies to taxation years that end after June 27, 1999.

177. (1) Paragraph 219(1)(b) of the Act is replaced by the following:

(b) the amount deducted because of section 112 and paragraph 115(1)(e) in computing the corporation’s base amount,

(2) Paragraph 219(1)(d) of the Act is amended by replacing the reference to the expression “1/3 of the amount” with a reference to the expression “the amount”.

(3) Subsection 219(1.1) of the Act is replaced by the following

Marginal note:Excluded gains

(1.1) For the purpose of subsection (1), the definition “taxable Canadian property” in subsection 248(1) shall be read without reference to paragraphs (a) and (c) to (k) of that definition and as if the only interests or options referred to in paragraph (l) of that definition were those in respect of property described in paragraph (b) of that definition.

(4) Paragraph 219(2)(a) of the Act is repealed.

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

(6) Subsection (2) applies to taxation years that end after February 27, 2000 except that, for such taxation years that ended before October 18, 2000, the reference in paragraph 219(1)(d) of the Act, as enacted by subsection (2), to the expression “the amount” shall be read as a reference to the expression “1/2 of the amount”.

(7) Subsection (3) applies after October 1, 1996.

(8) Subsection (4) applies to taxation years that end after June 27, 1999.

178. (1) Section 220 of the Act is amended by adding the following after subsection (4.4):

Marginal note:Security for departure tax

(4.5) If an individual who is deemed by subsection 128.1(4) to have disposed of a property (other than a right to a benefit under, or an interest in a trust governed by, an employee benefit plan) at any particular time in a taxation year (in this section referred to as the individual’s “emigration year”) elects, in prescribed manner on or before the individual’s balance-due day for the emigration year, that this subsection and subsections (4.51) to (4.54) apply in respect of the emigration year,

(a) the Minister shall, until the individual’s balance-due day for a particular taxation year that begins after the particular time, accept adequate security furnished by or on behalf of the individual on or before the individual’s balance-due day for the emigration year for the lesser of

(i) the amount determined by the formula

A – B – [((A – B)/A) × C]

where


is the total amount of taxes under Parts I and I.1 that would be payable by the individual for the emigration year if the exclusion or deduction of each amount referred to in paragraph 161(7)(a) were not taken into account,


is the total amount of taxes under those Parts that would have been so payable if each property (other than a right to a benefit under, or an interest in a trust governed by, an employee benefit plan) deemed by subsection 128.1(4) to have been disposed of at the particular time, and that has not been subsequently disposed of before the beginning of the particular year, were not deemed by subsection 128.1(4) to have been disposed of by the individual at the particular time, and


is the total of all amounts deemed under this or any other Act to have been paid on account of the individual’s tax under this Part for the emigration year, and

(ii) if the particular year immediately follows the emigration year, the amount determined under subparagraph (i), and in any other case, the amount determined under this paragraph in respect of the individual for the taxation year that immediately precedes the particular year, and

(b) except for the purposes of subsections 161(2), (4) and (4.01),

(i) interest under this Act for any period that ends on the individual’s balance-due day for the particular year and throughout which security is accepted by the Minister, and

(ii) any penalty under this Act computed with reference to an individual’s tax payable for the year that was, without reference to this paragraph, unpaid

shall be computed as if the particular amount for which adequate security has been accepted under this subsection were an amount paid by the individual on account of the particular amount.

Marginal note:Deemed security

(4.51) If an individual (other than a trust) elects under subsection (4.5) that that subsection apply in respect of a taxation year, for the purposes of this subsection and subsections (4.5) and (4.52) to (4.54), the Minister is deemed to have accepted at any time after the election is made adequate security for a total amount of taxes payable under Parts I and I.1 by the individual for the emigration year equal to the lesser of

(a) the total amount of those taxes that would be payable for the year by an inter vivos trust resident in Canada (other than a trust described in subsection 122(2)) the taxable income of which for the year is $50,000, and

(b) the greatest amount for which the Minister is required to accept security furnished by or on behalf of the individual under subsection (4.5) at that time in respect of the emigration year,

and that security is deemed to have been furnished by the individual before the individual's balance-due day for the emigration year.

Marginal note:Limit

(4.52) Notwithstanding subsections (4.5) and (4.51), the Minister is deemed at any time not to have accepted security under subsection (4.5) in respect of an individual’s emigration year for any amount greater than the amount, if any, by which

(a) the total amount of taxes that would be payable by the individual under Parts I and I.1 for the year if the exclusion or deduction of each amount referred to in paragraph 161(7)(a), in respect of which the day determined under paragraph 161(7)(b) is after that time, were not taken into account

exceeds

(b) the total amount of taxes that would be determined under paragraph (a) if this Act were read without reference to subsection 128.1(4).

Marginal note:Inadequate security

(4.53) Subject to subsection (4.7), if it is determined at any particular time that security accepted by the Minister under subsection (4.5) is not adequate to secure the particular amount for which it was furnished by or on behalf of an individual,

(a) subject to a subsequent application of this subsection, the security shall be considered after the particular time to secure only the amount for which it is adequate security at the particular time;

(b) the Minister shall notify the individual in writing of the determination and shall accept adequate security, for all or any part of the particular amount, furnished by or on behalf of the individual within 90 days after the day of notification; and

(c) any security accepted in accordance with paragraph (b) is deemed to have been accepted by the Minister under subsection (4.5) on account of the particular amount at the particular time.

Marginal note:Extension of time

(4.54) If in the opinion of the Minister it would be just and equitable to do so, the Minister may at any time extend

(a) the time for making an election under subsection (4.5);

(b) the time for furnishing and accepting security under subsection (4.5); or

(c) the 90-day period for the acceptance of security under paragraph (4.53)(b).

Marginal note:Security for tax on distributions of taxable Canadian property to non-resident beneficiaries

(4.6) Where

(a) solely because of the application of subsection 107(5), paragraphs 107(2)(a) to (c) do not apply to a distribution by a trust in a particular taxation year (in this section referred to as the trust’s “distribution year”) of taxable Canadian property, and

(b) the trust elects, in prescribed manner on or before the trust’s balance-due day for the distribution year, that this subsection and subsections (4.61) to (4.63) apply in respect of the distribution year,

the following rules apply:

(c) the Minister shall, until the trust’s balance-due day for a subsequent taxation year, accept adequate security furnished by or on behalf of the trust on or before the trust’s balance-due day for the distribution year for the lesser of

(i) the amount determined by the formula

A – B – [((A – B)/A) × C]

where


is the total amount of taxes under Parts I and I.1 that would be payable by the trust for the distribution year if the exclusion or deduction of each amount referred to in paragraph 161(7)(a) were not taken into account,


is the total amount of taxes under those Parts that would have been so payable if the rules in subsection 107(2) (other than the election referred to in that subsection) had applied to each disposition by the trust in the distribution year of property (other than property subsequently disposed of before the beginning of the subsequent year) to which paragraph (a) applies, and


is the total of all amounts deemed under this or any other Act to have been paid on account of the trust’s tax under this Part for the distribution year, and

(ii) where the subsequent year immediately follows the distribution year, the amount determined under subparagraph (i), and in any other case, the amount determined under this paragraph in respect of the trust for the taxation year that immediately precedes the subsequent year, and

(d) except for the purposes of subsections 161(2), (4) and (4.01),

(i) interest under this Act for any period that ends on the trust’s balance-due day for the subsequent year and throughout which security is accepted by the Minister, and

(ii) any penalty under this Act computed with reference to the trust’s tax payable for the year that was, without reference to this paragraph, unpaid

shall be computed as if the particular amount for which adequate security has been accepted under this subsection were an amount paid by the trust on account of the particular amount.

Marginal note:Limit

(4.61) Notwithstanding subsection (4.6), the Minister is deemed at any time not to have accepted security under that subsection in respect of a trust’s distribution year for any amount greater than the amount, if any, by which

(a) the total amount of taxes that would be payable by the trust under Parts I and I.1 for the year if the exclusion or deduction of each amount referred to in paragraph 161(7)(a), in respect of which the day determined under paragraph 161(7)(b) is after that time, were not taken into account

exceeds

(b) the total amount of taxes that would be determined under paragraph (a) if paragraphs 107(2)(a) to (c) had applied to each distribution by the trust in the year of property to which paragraph (1)(a) applies.

Marginal note:Inadequate security

(4.62) Subject to subsection (4.7), where it is determined at any particular time that security accepted by the Minister under subsection (4.6) is not adequate to secure the particular amount for which it was furnished by or on behalf of a trust,

(a) subject to a subsequent application of this subsection, the security shall be considered after the particular time to secure only the amount for which it is adequate security at the particular time;

(b) the Minister shall notify the trust in writing of the determination and shall accept adequate security, for all or any part of the particular amount, furnished by or on behalf of the trust within 90 days after the notification; and

(c) any security accepted in accordance with paragraph (b) is deemed to have been accepted by the Minister under subsection (4.6) on account of the particular amount at the particular time.

Marginal note:Extension of time

(4.63) Where in the opinion of the Minister it would be just and equitable to do so, the Minister may at any time extend

(a) the time for making an election under subsection (4.6);

(b) the time for furnishing and accepting security under subsection (4.6); or

(c) the 90-day period for the acceptance of the security under paragraph (4.62)(b).

Marginal note:Undue hardship

(4.7) If, in respect of any period of time, the Minister determines that an individual who has made an election under either subsection (4.5) or (4.6)

(a) cannot, without undue hardship, pay or reasonably arrange to have paid on the individual’s behalf, an amount of taxes to which security under that subsection would relate, and

(b) cannot, without undue hardship, provide or reasonably arrange to have provided on the individual’s behalf, adequate security under that subsection,

the Minister may, in respect of the election, accept for the period security different from, or of lesser value than, that which the Minister would otherwise accept under that subsection.

Marginal note:Limit

(4.71) In making a determination under subsection (4.7), the Minister shall ignore any transaction that is a disposition, lease, encumbrance, mortgage, hypothec, or other voluntary restriction by a person or partnership of the person’s or partnership’s rights in respect of a property, if the transaction can reasonably be considered to have been entered into for the purpose of influencing the determination.

(2) Subsection (1) applies to dispositions and distributions that occur at any time after October 1, 1996 except that,

(a) the reference to “$50,000” in paragraph 220(4.51)(a) of the Act, as enacted by subsection (1), shall be read as a reference to “$75,000” in respect of emigration years that are before 2001; and

(b) if an individual ceased to be resident in Canada, or a distribution by a trust occurred to which paragraph 220(4.6)(a) of the Act, as enacted by subsection (1), applies in respect of the trust, before the particular day on which this Act receives royal assent,

(i) an election by the individual under subsection 220(4.5) of the Act, or by the trust under subsection 220(4.6) of the Act, as the case may be, as enacted by subsection (1), in respect of the taxation year that includes that time is deemed to have been made in a timely manner if it is made on or before the individual’s filing-due date for the taxation year that includes the particular day, and

(ii) security furnished by or on behalf of the individual under subsection 220(4.5) of the Act, or by or on behalf of the trust under subsection 220(4.6) of the Act, as the case may be, as enacted by subsection (1), is deemed to have been furnished in a timely manner if it is furnished on or before the individual’s filing-due date for the taxation year that includes the particular day.

179. Paragraph 225.1(6)(b) of the Act is replaced by the following:

(b) an amount required to be deducted or withheld, and required to be remitted or paid, under this Act or the Regulations;

180. (1) Section 227 of the Act is amended by adding the following after subsection (4.2):

Marginal note:Application to Crown

(4.3) For greater certainty, subsections (4) to (4.2) apply to Her Majesty in right of Canada or a province where Her Majesty in right of Canada or a province is a secured creditor (within the meaning assigned by subsection 224(1.3)) or holds a security interest (within the meaning assigned by that subsection).

(2) Subsection 227(16) of the Act is replaced by the following:

Marginal note:Municipal or provincial corporation excepted

(16) A corporation that at any time in a taxation year would be a corporation described in any of paragraphs 149(1)(d) to (d.6) but for a provision of an appropriation Act is deemed not to be a private corporation for the purposes of Part IV with respect to that year.

(3) Subsection (2) applies to taxation years that begin after 1998.

181. The portion of section 231 of the Act before the definition “authorized person” is replaced by the following:

Marginal note:Definitions

231. In sections 231.1 to 231.7,

182. Subsection 231.5(2) of the Act is replaced by the following:

Marginal note:Compliance

(2) No person shall, physically or otherwise, interfere with, hinder or molest an official (in this subsection having the meaning assigned by subsection 241(10)) doing anything that the official is authorized to do under this Act or attempt to interfere with, hinder or molest any official doing or prevent or attempt to prevent an official from doing, anything that the official is authorized to do under this Act, and every person shall, unless the person is unable to do so, do everything that the person is required to do by or under subsection (1) or sections 231.1 to 231.4.

183. The Act is amended by adding the following after section 231.6:

Marginal note:Compliance order

231.7 (1) On summary application by the Minister, a judge may, notwithstanding subsection 238(2), order a person to provide any access, assistance, information or document sought by the Minister under section 231.1 or 231.2 if the judge is satisfied that

(a) the person was required under section 231.1 or 231.2 to provide the access, assistance, information or document and did not do so; and

(b) in the case of information or a document, the information or document is not protected from disclosure by solicitor-client privilege (within the meaning of subsection 232(1)).

Marginal note:Notice required

(2) An application under subsection (1) must not be heard before the end of five clear days from the day the notice of application is served on the person against whom the order is sought.

Marginal note:Judge may impose conditions

(3) A judge making an order under subsection (1) may impose any conditions in respect of the order that the judge considers appropriate.

Marginal note:Contempt of court

(4) If a person fails or refuses to comply with an order, a judge may find the person in contempt of court and the person is subject to the processes and the punishments of the court to which the judge is appointed.

Marginal note:Appeal

(5) An order by a judge under subsection (1) may be appealed to a court having appellate jurisdiction over decisions of the court to which the judge is appointed. An appeal does not suspend the execution of the order unless it is so ordered by a judge of the court to which the appeal is made.

184. (1) The definition “specified foreign property” in subsection 233.3(1) of the Act is amended by adding the following after paragraph (o):

(o.1) a right with respect to, or indebtedness of, an authorized foreign bank that is issued by, and payable or otherwise enforceable at, a branch in Canada of the bank.

(2) Subsection (1) applies after June 27, 1999.

185. Paragraph 239(2.21)(a) of the Act is replaced by the following:

(a) to whom taxpayer information has been provided for a particular purpose under paragraph 241(4)(b), (c), (e), (h), (k), (n), (o) or (p).

186. (1) The portion of subsection 241(3.2) of the Act before paragraph (a) is replaced by the following:

Marginal note:Registered charities

(3.2) An official may provide to any person the following taxpayer information relating to another person that was at any time a registered charity (in this subsection referred to as the “charity”):

(2) Subsection 241(4) of the Act is amended by striking out the word “or” at the end of paragraph (m) and by adding the following after paragraph (n):

(o) provide taxpayer information to any person solely for the purpose of enabling the Chief Statistician, within the meaning assigned by section 2 of the Statistics Act, to provide to a statistical agency of a province data concerning business activities carried on in the province, where the information is used by the agency solely for research and analysis and the agency is authorized under the law of the province to collect the same or similar information on its own behalf in respect of such activities; or

(p) provide taxpayer information to a police officer (within the meaning assigned by subsection 462.48(17) of the Criminal Code) solely for the purpose of investigating whether an offence has been committed under the Criminal Code, or the laying of an information or the preferring of an indictment, where

(i) such information can reasonably be regarded as being necessary for the purpose of ascertaining the circumstances in which an offence under the Criminal Code may have been committed, or the identity of the person or persons who may have committed an offence, with respect to an official, or with respect to any person related to that official,

(ii) the official was or is engaged in the administration or enforcement of this Act, and

(iii) the offence can reasonably be considered to be related to that administration or enforcement.

(3) Paragraph 241(4)(o) of the Act, as enacted by subsection (2), applies after this Act receives royal assent to information relating to the 1997 and subsequent taxation years and, for the purpose of subsection 17(2) of the Statistics Act, where such information was collected before this Act receives royal assent, the information is deemed to have been collected at the time at which it is provided to a provincial agency pursuant to paragraph 241(4)(o) of the Income Tax Act, as enacted by subsection (2).

187. (1) The definition “transfer pricing capital adjustment” in subsection 247(1) of the Act is replaced by the following:

“transfer pricing capital adjustment”

« redressement de capital »

“transfer pricing capital adjustment” of a taxpayer for a taxation year means the total of

(a) all amounts each of which is

(i) 1/2 of the amount, if any, by which the adjusted cost base to the taxpayer of a capital property (other than a depreciable property) is reduced in the year because of an adjustment made under subsection (2),

(ii) 3/4 of the amount, if any, by which the adjusted cost base to the taxpayer of an eligible capital expenditure of the taxpayer in respect of a business is reduced in the year because of an adjustment made under subsection (2), or

(iii) the amount, if any, by which the capital cost to the taxpayer of a depreciable property is reduced in the year because of an adjustment made under subsection (2); and

(b) all amounts each of which is that proportion of the total of

(i) 1/2 of the amount, if any, by which the adjusted cost base to a partnership of a capital property (other than a depreciable property) is reduced in a fiscal period that ends in the year because of an adjustment made under subsection (2),

(ii) 3/4 of the amount, if any, by which the adjusted cost base to a partnership of an eligible capital expenditure of the partnership in respect of a business is reduced in a fiscal period that ends in the year because of an adjustment made under subsection (2), and

(iii) the amount, if any, by which the capital cost to a partnership of a depreciable property is reduced in the period because of an adjustment made under subsection (2),

that

(iv) the taxpayer’s share of the income or loss of the partnership for the period

is of

(v) the income or loss of the partnership for the period,

and where the income and loss of the partnership are nil for the period, the income of the partnership for the period is deemed to be $1,000,000 for the purpose of determining a taxpayer's share of the partnership's income for the purpose of this definition.

(2) Subsection 247(4) of the French version of the Act is replaced by the following:

Marginal note:Documentation ponctuelle

(4) Pour l’application du paragraphe (3) et de la définition de arrangement admissible de participation au coût au paragraphe (1), un contribuable ou une société de personnes est réputé ne pas avoir fait d’efforts sérieux pour déterminer et utiliser les prix de transfert de pleine concurrence ou les attributions de pleine concurrence relativement à une opération ou ne pas avoir pris part à une opération qui est un arrangement admissible de participation au coût, à moins d’avoir à la fois :

a) établi ou obtenu, au plus tard à la date limite de production qui lui est applicable pour l’année d’imposition ou l’exercice, selon le cas, au cours duquel l’opération est conclue, des registres ou des documents contenant une description complète et exacte, quant à tous les éléments importants, de ce qui suit :

(i) les biens ou les services auxquels l’opération se rapporte,

(ii) les modalités de l’opération et leurs rapports éventuels avec celles de chacune des autres opérations conclues entre les participants à l’opération,

(iii) l’identité des participants à l’opération et les liens qui existent entre eux au moment de la conclusion de l’opération,

(iv) les fonctions exercées, les biens utilisés ou apportés et les risques assumés dans le cadre de l’opération par les participants,

(v) les données et méthodes prises en considération et les analyses effectuées en vue de déterminer les prix de transfert, l’attribution des bénéfices ou des pertes ou la participation aux coûts, selon le cas, relativement à l’opération,

(vi) les hypothèses, stratégies et principes éventuels ayant influé sur l’établissement des prix de transfert, l’attribution des bénéfices ou des pertes ou la participation aux coûts relativement à l’opération;

b) pour chaque année d’imposition ou exercice ultérieur où se poursuit l’opération, établi ou obtenu, au plus tard à la date limite de production qui lui est applicable pour l’année ou l’exercice, selon le cas, des registres ou des documents contenant une description complète et exacte de chacun des changements importants dont les éléments visés aux sous-alinéas a)(i) à (vi) ont fait l’objet au cours de l’année ou de l’exercice relativement à l’opération;

c) fourni les registres ou documents visés aux alinéas a) et b) au ministre dans les trois mois suivant la signification à personne ou par courrier recommandé ou certifié d’une demande écrite les concernant.

(3) Subsection (1) applies to taxation years that end after February 27, 2000 except that, for a taxation year of a taxpayer that includes February 28, 2000 or October 17, 2000, or began after February 28, 2000 or ended before October 17, 2000, the reference to the fraction “1/2” in the definition “transfer pricing capital adjustment” in subsection 247(1) of the Act, as enacted by subsection (1), shall be read as a reference to the fraction in paragraph 38(a) of the Act, as enacted by subsection 22(1), that applies to the taxpayer for the year.

(4) Subsection (2) applies in respect of adjustments made under subsection 247(2) of the Act for taxation years and fiscal periods that begin after 1998, except that

(a) subsection (2) does not apply to transactions completed before September 11, 1997; and

(b) a record or document made, obtained or provided to the Minister of National Revenue by a taxpayer or a partnership on or before the taxpayer’s or partnership’s documentation-due date for the taxpayer’s or partnership’s first taxation year or fiscal period, as the case may be, that begins after 1998 is deemed for the purpose of subsection 247(4) of the Act, as enacted by subsection (2), to have been so made, obtained or provided on a timely basis.

188. (1) The definitions “foreign resource property” and “net capital loss” in subsection 248(1) of the Act are replaced by the following:

“foreign resource property”

« avoir minier étranger »

“foreign resource property” has the meaning assigned by subsection 66(15), and a foreign resource property in respect of a country means a foreign resource property that is

(a) a right, licence or privilege to explore for, drill for or take petroleum, natural gas or related hydrocarbons in that country,

(b) a right, licence or privilege to

(i) store underground petroleum, natural gas or related hydrocarbons in that country, or

(ii) prospect, explore, drill or mine for minerals in a mineral resource in that country,

(c) an oil or gas well in that country or real property in that country the principal value of which depends on its petroleum or natural gas content (but not including depreciable property),

(d) a rental or royalty computed by reference to the amount or value of production from an oil or gas well in that country or from a natural accumulation of petroleum or natural gas in that country,

(e) a rental or royalty computed by reference to the amount or value of production from a mineral resource in that country,

(f) a real property in that country the principal value of which depends upon its mineral resource content (but not including depreciable property), or

(g) a right to or interest in any property described in any of paragraphs (a) to (f), other than such a right or interest that the taxpayer has by reason of being a beneficiary of a trust;

“net capital loss”

« perte en capital nette »

“net capital loss” has the meaning assigned by subsection 111(8), except as otherwise expressly provided;

(2) The definition “taxable Canadian property” in subsection 248(1) of the Act is replaced by the following:

“taxable Canadian property”

« bien canadien imposable »

“taxable Canadian property” of a taxpayer at any time in a taxation year means a property of the taxpayer that is

(a) real property situated in Canada,

(b) property used or held by the taxpayer in, eligible capital property in respect of, or property described in an inventory of, a business carried on in Canada, other than

(i) property used in carrying on an insurance business, and

(ii) where the taxpayer is non-resident, ships and aircraft used principally in international traffic and personal property pertaining to their operation if the country in which the taxpayer is resident does not impose tax on gains of persons resident in Canada from dispositions of such property,

(c) if the taxpayer is an insurer, its designated insurance property for the year,

(d) a share of the capital stock of a corporation resident in Canada (other than a non-resident-owned investment corporation if, on the first day of the year, the corporation owns neither taxable Canadian property nor property referred to in any of paragraphs (m) to (o), or a mutual fund corporation) that is not listed on a prescribed stock exchange,

(e) a share of the capital stock of a non-resident corporation that is not listed on a prescribed stock exchange if, at any particular time during the 60-month period that ends at that time,

(i) the fair market value of all of the properties of the corporation each of which was

(A) a taxable Canadian property,

(B) a Canadian resource property,

(C) a timber resource property,

(D) an income interest in a trust resident in Canada, or

(E) an interest in or option in respect of a property described in any of clauses (B) to (D), whether or not the property exists,

was greater than 50% of the fair market value of all of its properties, and

(ii) more than 50% of the fair market value of the share was derived directly or indirectly from one or any combination of

(A) real property situated in Canada,

(B) Canadian resource properties, and

(C) timber resource properties,

(f) a share that is listed on a prescribed stock exchange and that would be described in paragraph (d) or (e) if those paragraphs were read without reference to the words “that is not listed on a prescribed stock exchange”, or a share of the capital stock of a mutual fund corporation, if at any time during the 60-month period that ends at that time the taxpayer, persons with whom the taxpayer did not deal at arm’s length, or the taxpayer together with all such persons owned 25% or more of the issued shares of any class of the capital stock of the corporation that issued the share,

(g) an interest in a partnership if, at any particular time during the 60-month period that ends at that time, the fair market value of all of the properties of the partnership each of which was

(i) a taxable Canadian property,

(ii) a Canadian resource property,

(iii) a timber resource property,

(iv) an income interest in a trust resident in Canada, or

(v) an interest in or option in respect of a property described in any of subparagraphs (ii) to (iv), whether or not that property exists,

was greater than 50% of the fair market value of all of its properties,

(h) a capital interest in a trust (other than a unit trust) resident in Canada,

(i) a unit of a unit trust (other than a mutual fund trust) resident in Canada,

(j) a unit of a mutual fund trust if, at any time during the 60-month period that ends at that time, not less than 25% of the issued units of the trust belonged to the taxpayer, to persons with whom the taxpayer did not deal at arm’s length, or to the taxpayer and persons with whom the taxpayer did not deal at arm’s length,

(k) an interest in a non-resident trust if, at any particular time during the 60-month period that ends at that time,

(i) the fair market value of all of the properties of the trust each of which was

(A) a taxable Canadian property,

(B) a Canadian resource property,

(C) a timber resource property,

(D) an income interest in a trust resident in Canada, or

(E) an interest in or option in respect of a property described in any of clauses (B) to (D), whether or not that property exists

was greater than 50% of the fair market value of all of its properties, and

(ii) more than 50% of the fair market value of the interest was derived directly or indirectly from one or any combination of

(A) real property situated in Canada,

(B) Canadian resource properties, and

(C) timber resource properties, or

(l) an interest in or option in respect of a property described in any of paragraphs (a) to (k), whether or not that property exists,

and, for the purposes of section 2, subsection 107(2.001) and sections 128.1 and 150, and for the purpose of applying paragraphs 85(1)(i) and 97(2)(c) to a disposition by a non-resident person, includes

(m) a Canadian resource property,

(n) a timber resource property,

(o) an income interest in a trust resident in Canada,

(p) a right to a share of the income or loss under an agreement referred to in paragraph 96(1.1)(a), and

(q) a life insurance policy in Canada;

(3) The portion of the definition “grandfathered share” in subsection 248(1) of the Act after paragraph (d) is replaced by the following:

except that a share that is deemed under the definition “short-term preferred share”, “taxable preferred share” or “term preferred share” in this subsection or under subsection 112(2.22) to have been issued at any time is deemed after that time not to be a grandfathered share for the purposes of that provision;

(4) The portion of paragraph (b) of the definition “personal trust” in subsection 248(1) of the Act after subparagraph (ii) is replaced by the following:

but, after 1999, does not include a unit trust;

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

“alter ego trust”

« fiducie en faveur de soi-même »

“alter ego trust” means a trust to which paragraph 104(4)(a) would apply if that paragraph were read without reference to subparagraph 104(4)(a)(iii) and clauses 104(4)(a)(iv)(B) and (C);

“authorized foreign bank”

« banque étrangère autorisée »

“authorized foreign bank” has the meaning assigned by section 2 of the Bank Act;

“bank”

« banque »

“bank” means a bank within the meaning assigned by section 2 of the Bank Act or an authorized foreign bank;

“Canadian banking business”

« entreprise bancaire canadienne »

“Canadian banking business” means the business carried on by an authorized foreign bank through a permanent establishment (as defined by regulation) in Canada, other than business conducted through a representative office registered or required to be registered under section 509 of the Bank Act;

“disposition”

« disposition »

“disposition” of any property, except as expressly otherwise provided, includes

(a) any transaction or event entitling a taxpayer to proceeds of disposition of the property,

(b) any transaction or event by which,

(i) where the property is a share, bond, debenture, note, certificate, mortgage, agreement of sale or similar property, or an interest in it, the property is redeemed in whole or in part or is cancelled,

(ii) where the property is a debt or any other right to receive an amount, the debt or other right is settled or cancelled,

(iii) where the property is a share, the share is converted because of an amalgamation or merger,

(iv) where the property is an option to acquire or dispose of property, the option expires, and

(v) a trust, that can reasonably be considered to act as agent for all the beneficiaries under the trust with respect to all dealings with all of the trust’s property (unless the trust is described in any of paragraphs (a) to (e.1) of the definition “trust” in subsection 108(1)), ceases to act as agent for a beneficiary under the trust with respect to any dealing with any of the trust’s property,

(c) any transfer of the property to a trust or, where the property is property of a trust, any transfer of the property to any beneficiary under the trust, except as provided by paragraph (f), (g) or (k), and

(d) where the property is, or is part of, a taxpayer’s capital interest in a trust, except as provided by paragraph (h) or (i), a payment made after 1999 to the taxpayer from the trust that can reasonably be considered to have been made because of the taxpayer’s capital interest in the trust,

but does not include

(e) any transfer of the property as a consequence of which there is no change in the beneficial ownership of the property, except where the transfer is

(i) from a person or a partnership to a trust for the benefit of the person or the partnership,

(ii) from a trust to a beneficiary under the trust, or

(iii) from one trust maintained for the benefit of one or more beneficiaries under the trust to another trust maintained for the benefit of the same beneficiaries,

(f) any transfer of the property as a consequence of which there is no change in the beneficial ownership of the property, where

(i) the transferor and the transferee are trusts,

(ii) the transfer is not by a trust resident in Canada to a non-resident trust,

(iii) the transferee does not receive the property in satisfaction of the transferee’s right as a beneficiary under the transferor trust,

(iv) the transferee held no property immediately before the transfer (other than property the cost of which is not included, for the purposes of this Act, in computing a balance of undeducted outlays, expenses or other amounts in respect of the transferee),

(v) the transferee does not file a written election with the Minister on or before the filing-due date for its taxation year in which the transfer is made (or on such later date as is acceptable to the Minister) that this paragraph not apply,

(vi) if the transferor is an amateur athlete trust, a cemetery care trust, an employee trust, an inter vivos trust deemed by subsection 143(1) to exist in respect of a congregation that is a constituent part of a religious organization, a related segregated fund trust (in this paragraph having the meaning assigned by section 138.1), a trust described in paragraph 149(1)(o.4) or a trust governed by an eligible funeral arrangement, an employees profit sharing plan, a registered education savings plan or a registered supplementary unemployment benefit plan, the transferee is the same type of trust, and

(vii) the transfer results, or is part of a series of transactions or events that results, in the transferor ceasing to exist and, immediately before the time of the transfer or the beginning of that series, as the case may be, the transferee never held any property or held only property having a nominal value,

(g) any transfer of the property where

(i) the transferor is a trust governed by a registered retirement savings plan or a trust governed by a registered retirement income fund,

(ii) the transferee is a trust governed by a registered retirement savings plan or a trust governed by a registered retirement income fund,

(iii) the annuitant under the plan or fund that governs the transferor is also the annuitant under the plan or fund that governs the transferee,

(iv) the transferee held no property immediately before the transfer (other than property the cost of which is not included, for the purposes of this Act, in computing a balance of undeducted outlays, expenses or other amounts in respect of the transferee),

(v) the transferee does not file a written election with the Minister on or before the filing-due date for its taxation year in which the transfer is made (or on such later day as is acceptable to the Minister) that this paragraph not apply, and

(vi) the transfer results, or is part of a series of transactions or events that results, in the transferor ceasing to exist and, immediately before the time of the transfer or the beginning of that series, as the case may be, the transferee never held any property or held only property having a nominal value,

(h) where the property is part of a capital interest of a taxpayer in a trust (other than a personal trust or a trust prescribed for the purpose of subsection 107(2)) that is described by reference to units issued by the trust, a payment after 1999 from the trust in respect of the capital interest, where the number of units in the trust that are owned by the taxpayer is not reduced because of the payment,

(i) where the property is a taxpayer’s capital interest in a trust, a payment to the taxpayer after 1999 in respect of the capital interest to the extent that the payment

(i) is out of the income of the trust (determined without reference to subsection 104(6)) for a taxation year or out of the capital gains of the trust for the year, if the payment was made in the year or the right to the payment was acquired by the taxpayer in the year, or

(ii) is in respect of an amount designated in respect of the taxpayer by the trust under subsection 104(20),

(j) any transfer of the property for the purpose only of securing a debt or a loan, or any transfer by a creditor for the purpose only of returning property that had been used as security for a debt or a loan,

(k) any transfer of the property to a trust as a consequence of which there is no change in the beneficial ownership of the property, where the main purpose of the transfer is

(i) to effect payment under a debt or loan,

(ii) to provide assurance that an absolute or contingent obligation of the transferor will be satisfied, or

(iii) to facilitate either the provision of compensation or the enforcement of a penalty, in the event that an absolute or contingent obligation of the transferor is not satisfied,

(l) any issue of a bond, debenture, note, certificate, mortgage or hypothecary claim, and

(m) any issue by a corporation of a share of its capital stock, or any other transaction that, but for this paragraph, would be a disposition by a corporation of a share of its capital stock;

“foreign currency”

« monnaie étrangère »

“foreign currency” means currency of a country other than Canada;

“foreign resource expense”

« frais relatifs à des ressources à l’étranger »

“foreign resource expense” has the meaning assigned by subsection 66.21(1);

“foreign resource pool expenses”

« frais globaux relatifs à des ressources à l’étranger »

“foreign resource pool expenses” of a taxpayer means the taxpayer’s foreign resource expenses in respect of all countries and the taxpayer’s foreign exploration and development expenses;

“joint spousal or common-law partner trust”

« fiducie mixte au profit de l’époux ou du conjoint de fait »

“joint spousal or common-law partner trust” means a trust to which paragraph 104(4)(a) would apply if that paragraph were read without reference to subparagraph 104(4)(a)(iii) and clause 104(4)(a)(iv)(A);

“OSFI risk-weighting guidelines”

« lignes directrices du BSIF sur la pondération des risques »

“OSFI risk-weighting guidelines” means the guidelines, issued by the Superintendent of Financial Institutions under the authority of section 600 of the Bank Act, requiring an authorized foreign bank to provide to the Superintendent on a periodic basis a return of the bank’s risk-weighted on-balance sheet assets and off-balance sheet exposures, that apply as of August 8, 2000;

“post-1971 spousal or common-law partner trust”

« fiducie au profit de l’époux ou du conjoint de fait postérieure à 1971 »

“post-1971 spousal or common-law partner trust” means a trust that would be described in paragraph 104(4)(a) if that paragraph were read without reference to subparagraph 104(4)(a)(iv);

“qualified donee”

« donataire reconnu »

“qualified donee” has the meaning assigned by subsection 149.1(1);

(6) Section 248 of the Act is amended by adding the following after subsection (25):

Marginal note:Trust-to-trust transfers

(25.1) Where at any time a particular trust transfers property to another trust (other than a trust governed by a registered retirement savings plan or by a registered retirement income fund) in circumstances to which paragraph (f) of the definition “disposition” in subsection (1) applies, without affecting the personal liabilities under this Act of the trustees of either trust or the application of subsection 104(5.8) and paragraph 122(2)(f), the other trust is deemed to be after that time the same trust as, and a continuation of, the particular trust.

Marginal note:Trusts to ensure obligations fulfilled

(25.2) Except for the purpose of this subsection, where at any time property is transferred to a trust in circumstances to which paragraph (k) of the definition “disposition” in subsection (1) applies, the trust is deemed to deal with the property as agent for the transferor throughout the period that begins at the time of the transfer and ends at the time of the first change after that time in the beneficial ownership of the property.

Marginal note:Cost of trust interest

(25.3) The cost to a taxpayer of a particular unit of a trust is deemed to be equal to the amount described in paragraph (a) where

(a) the trust issues the particular unit to the taxpayer directly in satisfaction of a right to enforce payment of an amount by the trust in respect of the taxpayer’s capital interest in the trust;

(b) at the time that the particular unit is issued, the trust is neither a personal trust nor a trust prescribed for the purpose of subsection 107(2); and

(c) either

(i) the particular unit is capital property and subparagraph 53(2)(h)(i.1) applies in respect of the amount described in paragraph (a), or would apply if that subparagraph were read without reference to clauses 53(2)(h)(i.1) (A) and (B), or

(ii) the particular unit is not capital property and subparagraph 53(2)(h)(i.1) does not apply in respect of the amount described in paragraph (a) but would so apply if that subparagraph were read without reference to clauses 53(2)(h)(i.1)(A) and (B).

Marginal note:Where acquisition by another of right to enforce

(25.4) If at a particular time a taxpayer’s capital interest in a trust includes a right to enforce payment of an amount by the trust, the amount shall be added at the particular time to the cost otherwise determined to the taxpayer of the capital interest where

(a) immediately after the particular time there is a disposition by the taxpayer of the capital interest;

(b) as a consequence of the disposition, the right to enforce payment of the amount is acquired by another person or partnership; and

(c) if the right to enforce payment of the amount had been satisfied by a payment to the taxpayer by the trust, there would have been no disposition of that right for the purposes of this Act because of the application of paragraph (i) of the definition “disposition” in subsection (1).

(7) Section 248 of the Act is amended by adding the following after subsection (28):

Marginal note:Prescribed stock exchange rule

(29) A part, division or subdivision of a stock exchange that is prescribed for the purpose of any provision of this Act is deemed for that purpose to be a prescribed stock exchange.

(8) The definition “foreign resource property” in subsection 248(1) of the Act, as enacted by subsection (1), and the definitions “foreign resource expense” and “foreign resource pool expense” in subsection 248(1) of the Act, as enacted by subsection (5), apply after 2000.

(9) The definition “net capital loss” in subsection 248(1) of the Act, as enacted by subsection (1), applies to taxation years that end after February 27, 2000.

(10) Subsection (2) applies after October 1, 1996 except that, in its application before December 24, 1998, the portion of paragraph (b) of the definition “taxable Canadian property” in subsection 248(1) of the Act before subparagraph (i), as enacted by subsection (2), shall be read as follows:

(b) capital property used by the taxpayer in carrying on a business in Canada, other than

(11) Subsection (3) applies in respect of dividends received after 1998.

(12) Subsection (4) applies after December 23, 1998.

(13) The definitions “alter ego trust” and “joint spousal or common-law partner trust” in subsection 248(1) of the Act, as enacted by subsection (5), apply to trusts created after 1999.

(14) The definitions “authorized foreign bank”, “bank”, “Canadian banking business”, “foreign currency” and “OSFI risk-weighting guidelines” in subsection 248(1) of the Act, as enacted by subsection (5), apply after June 27, 1999.

(15) The definition “disposition” in subsection 248(1) of the Act, as enacted by subsection (5), applies to transactions and events that occur after December 23, 1998, except that paragraphs (f) and (g) of that definition, as enacted by subsection (5), shall not apply for the purposes of the Act (other than section 107.4 of the Act, as enacted by subsection 82(1)) to a transfer of property, that occurred before 2000, by a trust governed by a registered retirement savings plan or by a registered retirement income fund to a trust governed by a registered retirement income fund (or to a transfer by a trust governed by a registered retirement income fund to a trust governed by a registered retirement savings plan) unless the transferee trust files a written election with the Minister of National Revenue on or before the filing-due date for its taxation year in which the transfer is made (or on such later day as is acceptable to the Minister) that paragraph (f) or (g), as the case may be, of that definition apply.

(16) The definition “post-1971 spousal or common-law partner trust” in subsection 248(1) of the Act, as enacted by subsection (5), applies to trusts created after 1971.

(17) The definition “qualified donee” in subsection 248(1) of the Act, as enacted by subsection (5), applies after 1998.

(18) Subsections 248(25.1), (25.2) and (25.4) of the Act, as enacted by subsection (6), apply to transfers that occur after December 23, 1998.

(19) Subsection 248(25.3) of the Act, as enacted by subsection (6), applies to the 1999 and subsequent taxation years.

(20) Subsection (7) applies after October 1999.

189. (1) The portion of paragraph 249.1(1)(b) of the Act after subparagraph (iii) is replaced by the following:

after the end of the calendar year in which the period began unless, in the case of a business, the business is not carried on in Canada, is a prescribed business or is carried on by a prescribed person or partnership,

(2) Subsection (1) applies to fiscal periods that begin after 1994.

190. (1) Subsection 250(5) of the Act is replaced by the following:

Marginal note:Deemed non-resident

(5) Notwithstanding any other provision of this Act (other than paragraph 126(1.1)(a)), a person is deemed not to be resident in Canada at a time if, at that time, the person would, but for this subsection and any tax treaty, be resident in Canada for the purposes of this Act but is, under a tax treaty with another country, resident in the other country and not resident in Canada.

(2) Section 250 of the Act is amended by adding the following after subsection (6):

Marginal note:Residence of inter vivos trusts

(6.1) For the purposes of provisions of this Act that apply to a trust for a taxation year only where the trust has been resident in Canada throughout the year, where a particular trust ceases at any time to exist and the particular trust was resident in Canada immediately before that time, the particular trust is deemed to be resident in Canada throughout the period that begins at that time and ends at the end of the year.

(3) Subsection (1) applies after June 27, 1999, except that if on February 24, 1998 an individual who would, but for a tax treaty (within the meaning assigned by subsection 248(1) of the Act), be resident in Canada for the purposes of the Act is, under the tax treaty, resident in another country, subsection (1) does not apply to the individual until the first time after June 27, 1999 at which the individual becomes, under a tax treaty, resident in a country other than Canada.

(4) Subsection (2) applies to the 1990 and subsequent taxation years.

191. (1) The Act is amended by adding the following after section 250:

Marginal note:Non-resident person’s taxation year and income

250.1 For greater certainty, unless the context requires otherwise

(a) a taxation year of a non-resident person shall be determined, except as otherwise permitted by the Minister, in the same manner as the taxation year of a person resident in Canada; and

(b) a person for whom income for a taxation year is determined in accordance with this Act includes a non-resident person.

(2) Subsection (1) applies after December 17, 1999.

192. (1) Subsection 251(1) of the Act is amended by striking out the word “and” at the end of paragraph (a) and by replacing paragraph (b) with the following:

(b) a taxpayer and a personal trust (other than a trust described in any of paragraphs (a) to (e.1) of the definition “trust” in subsection 108(1)) are deemed not to deal with each other at arm’s length if the taxpayer, or any person not dealing at arm’s length with the taxpayer, would be beneficially interested in the trust if subsection 248(25) were read without reference to subclauses 248(25)(b)(iii)(A)(II) to (IV); and

(c) where paragraph (b) does not apply, it is a question of fact whether persons not related to each other are at a particular time dealing with each other at arm’s length.

(2) Subsection (1) applies after December 23, 1998 except that paragraph 251(1)(b) of the Act, as enacted by subsection (1), shall, for the purpose of applying the definition “taxable Canadian property” in subsection 248(1) of the Act, not apply in respect of property acquired before December 24, 1998.

193. (1) The Act is amended by adding the following after section 253:

Marginal note:Investments in limited partnerships

253.1 For the purposes of subparagraph 108(2)(b)(ii), paragraphs 130.1(6)(b), 131(8)(b), 132(6)(b) and 149(1)(o.2), the definition “private holding corporation” in subsection 191(1) and regulations made for the purposes of paragraphs 149(1)(o.3) and (o.4), where a trust or corporation holds an interest as a member of a partnership and, by operation of any law governing the arrangement in respect of the partnership, the liability of the member as a member of the partnership is limited, the member shall not, solely because of its acquisition and holding of that interest, be considered to carry on any business or other activity of the partnership.

(2) Subsection (1) applies after 1992, except that for taxation years that end after December 16, 1999 and before 2003, section 253.1 of the Act, as enacted by subsection (1), shall be read as follows:

253.1 For the purposes of subparagraph 108(2)(b)(ii), paragraphs 130.1(6)(b), 131(8)(b), 132(6)(b) and 149(1)(o.2), the definition “private holding corporation” in subsection 191(1) and regulations made for the purposes of paragraphs 149(1)(o.3) and (o.4), where a trust or corporation is a member of a partnership and, by operation of any law governing the arrangement in respect of the partnership, the liability of the member as a member of the partnership is limited, the member is deemed

(a) to undertake an investing of its funds because of its acquisition and holding of its interest as a member of the partnership; and

(b) not to carry on any business or other activity of the partnership.

194. (1) Section 256 of the Act is amended by adding the following after subsection (6):

Marginal note:Simultaneous control

(6.1) For the purposes of this Act and for greater certainty,

(a) where a corporation (in this paragraph referred to as the “subsidiary”) would be controlled by another corporation (in this paragraph referred to as the “parent”) if the parent were not controlled by any person or group of persons, the subsidiary is controlled by

(i) the parent, and

(ii) any person or group of persons by whom the parent is controlled; and

(b) where a corporation (in this paragraph referred to as the “subject corporation”) would be controlled by a group of persons (in this paragraph referred to as the “first-tier group”) if no corporation that is a member of the first-tier group were controlled by any person or group of persons, the subject corporation is controlled by

(i) the first-tier group, and

(ii) any group of one or more persons comprised of, in respect of every member of the first-tier group, either the member, or a person or group of persons by whom the member is controlled.

Marginal note:Application to control in fact

(6.2) In its application to subsection (5.1), subsection (6.1) shall be read as if the references in subsection (6.1) to “controlled” were references to “controlled, directly or indirectly in any manner whatever,”.

(2) Subsection (1) applies to taxation years that begin after November 1999.

195. (1) Subparagraph 258(3)(b)(ii) of the Act is replaced by the following:

(ii) was issued before 8:00 p.m. Eastern Daylight Saving Time, June 18, 1987 and is not deemed by subsection 112(2.22) to have been issued after that time

(2) Subsection (1) applies in respect of dividends received after 1998.

PART 2 HARMONIZATION WITH THE CIVIL CODE OF QUEBEC

R.S., c. 1 (5th Supp.)Income Tax Act

196. (1) Subsection 13(7.3) of the Income Tax Act is replaced by the following:

Marginal note:Control of corporations by one trustee

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

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

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

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

(2) Paragraph (g) of the definition “proceeds of disposition” in subsection 13(21) of the English version of the Act is replaced by the following:

(g) an amount by which the liability of a taxpayer to a mortgagee or hypothecary creditor is reduced as a result of the sale of mortgaged or hypothecated property under a provision of the mortgage or hypothec, plus any amount received by the taxpayer out of the proceeds of the sale, and

(3) Paragraph 13(21.2)(c) of the English version of the Act is replaced by the following:

(c) on the 30th day after the particular time, a person or partnership (in this subsection referred to as the “subsequent owner”) who is the transferor or a person affiliated with the transferor owns or has a right to acquire the transferred property (other than a right, as security only, derived from a mortgage, hypothec, agreement for sale or similar obligation),

(4) Clause 13(21.2)(e)(iii)(A) of the English version of the Act is replaced by the following:

(A) at which a 30-day period begins throughout which neither the transferor nor a person affiliated with the transferor owns or has a right to acquire the transferred property (other than a right, as security only, derived from a mortgage, hypothec, agreement for sale or similar obligation),

197. (1) Subparagraph (f)(iii) of the definition “eligible capital expenditure” in subsection 14(5) of the Act is replaced by the following:

(iii) a share, bond, debenture, mortgage, hypothecary claim, note, bill or other similar property, or

(2) Paragraph 14(13)(a) of the English version of the Act is replaced by the following:

(a) a right to acquire a property (other than a right, as security only, derived from a mortgage, hypothec, agreement for sale or similar obligation) is deemed to be a property that is identical to the property; and

198. The portion of the definition “qualifying debt obligation” in subsection 15.1(3) of the Act before paragraph (a) is replaced by the following:

“qualifying debt obligation”

« créance admissible »

“qualifying debt obligation” of a corporation at a particular time means an obligation that is a bond, debenture, bill, note, mortgage, hypothecary claim or similar obligation issued after February 25, 1992 and before 1995,

199. The portion of the definition “qualifying debt obligation” in subsection 15.2(3) of the Act before paragraph (a) is replaced by the following:

“qualifying debt obligation”

« créance admissible »

“qualifying debt obligation” of an issuer at a particular time means an obligation that is a bill, note, mortgage, hypothecary claim or similar obligation issued after February 25, 1992 and before 1995,

200. The portion of subsection 16(3) of the Act before paragraph (a) is replaced by the following:

Marginal note:Obligation issued at discount

(3) Where, in the case of a bond, debenture, bill, note, mortgage, hypothecary claim or similar obligation (other than an obligation that is a prescribed debt obligation for the purpose of subsection 12(9)) issued after June 18, 1971 by a person exempt, because of section 149, from Part I tax on part or on all of the person’s income, a non-resident person not carrying on business in Canada or a government, municipality or municipal or other public body performing a function of government,

201. (1) Paragraph 18(13)(e) of the Act is replaced by the following:

(e) the particular property is a share, or a loan, bond, debenture, mortgage, hypothecary claim, note, agreement for sale or any other indebtedness;

(2) Subsection 18(16) of the English version of the Act is replaced by the following:

Marginal note:Deemed identical property

(16) For the purposes of subsections (13), (14) and (15), a right to acquire a property (other than a right, as security only, derived from a mortgage, hypothec, agreement for sale or similar obligation) is deemed to be a property that is identical to the property.

202. Subsection 18.1(12) of the English version of the Act is replaced by the following:

Marginal note:Identical property

(12) For the purposes of subsections (8) and (10), a right to acquire a particular right to receive production (other than a right, as security only, derived from a mortgage, hypothec, agreement of sale or similar obligation) is deemed to be a right to receive production that is identical to the particular right.

203. (1) The portion of paragraph 20(1)(f) of the Act before subparagraph (i) is replaced by the following:

(f) an amount paid in the year in satisfaction of the principal amount of any bond, debenture, bill, note, mortgage, hypothecary claim or similar obligation issued by the taxpayer after June 18, 1971 on which interest was stipulated to be payable, to the extent that the amount so paid does not exceed,

(2) The portion of subsection 20(5) of the Act before paragraph (b) is replaced by the following:

Marginal note:Sale of agreement for sale, mortgage or hypothecary claim included in proceeds of disposition

(5) Where depreciable property, other than a timber resource property, of a taxpayer has, in a taxation year, been disposed of to a person with whom the taxpayer was dealing at arm’s length, and the proceeds of disposition include an agreement for the sale of, or a mortgage or hypothecary claim on, land that the taxpayer has, in a subsequent taxation year, sold to a person with whom the taxpayer was dealing at arm’s length, there may be deducted in computing the income of the taxpayer for the subsequent year an amount equal to the lesser of

(a) the amount, if any, by which the principal amount of the agreement for sale, mortgage or hypothecary claim outstanding at the time of the sale exceeds the consideration paid by the purchaser to the taxpayer for the agreement for sale, mortgage or hypothecary claim, and

(3) Subsection 20(5.1) of the Act is replaced by the following:

Marginal note:Sale of agreement for sale, mortgage or hypothecary claim included in proceeds of disposition

(5.1) Where a timber resource property of a taxpayer has, in a taxation year, been disposed of to a person with whom the taxpayer was dealing at arm’s length, and the proceeds of disposition include an agreement for sale of, or a mortgage or hypothecary claim on, land that the taxpayer has, in a subsequent taxation year, sold to a person with whom the taxpayer was dealing at arm’s length, there may be deducted in computing the income of the taxpayer for the subsequent year the amount, if any, by which the principal amount of the agreement for sale, mortgage or hypothecary claim outstanding at the time of the sale exceeds the consideration paid by the purchaser to the taxpayer for the agreement for sale, mortgage or hypothecary claim.

204. Subsection 39(6) of the Act is replaced by the following:

Definition of “Canadian security”

(6) For the purposes of this section, “Canadian security” means a security (other than a prescribed security) that is a share of the capital stock of a corporation resident in Canada, a unit of a mutual fund trust or a bond, debenture, bill, note, mortgage, hypothecary claim or similar obligation issued by a person resident in Canada.

205. Paragraph 40(3.5)(a) of the English version of the Act is replaced by the following:

(a) a right to acquire a property (other than a right, as security only, derived from a mortgage, hypothec, agreement for sale or similar obligation) is deemed to be a property that is identical to the property;

206. Paragraph 53(1)(g) of the Act is replaced by the following:

(g) where the property is a bond, debenture, bill, note, mortgage, hypothecary claim or similar obligation, the amount, if any, by which the principal amount of the obligation exceeds the amount for which the obligation was issued, if the excess was required by subsection 16(2) or (3) to be included in computing the income of the taxpayer for a taxation year commencing before that time;

207. (1) Paragraph (g) of the definition “proceeds of disposition” in section 54 of the English version of the Act is replaced by the following:

(g) an amount by which the liability of a taxpayer to a mortgagee or hypothecary creditor is reduced as a result of the sale of mortgaged or hypothecated property under a provision of the mortgage or hypothec, plus any amount received by the taxpayer out of the proceeds of the sale,

(2) The portion of the definition “superficial loss” in section 54 of the English version of the Act after paragraph (h) is replaced by the following:

and, for the purpose of this definition, a right to acquire a property (other than a right, as security only, derived from a mortgage, hypothec, agreement for sale or similar obligation) is deemed to be a property that is identical to the property.

208. (1) Paragraph 70(8)(a) of the English version of the Act is replaced by the following:

(a) the “fair market value” at any time of any property subject to a mortgage or hypothec is the amount, if any, by which the fair market value at that time of the property otherwise determined exceeds the amount outstanding at that time of the debt secured by the mortgage or hypothec, as the case may be;

(2) Subparagraph 70(8)(b)(ii) of the English version of the Act is replaced by the following:

(ii) any debt secured by a mortgage or hypothec on property owned by the taxpayer immediately before the taxpayer’s death; and

209. The definitions “creditor” and “debt” in subsection 79(1) of the Act are replaced by the following:

“creditor”

« créancier »

“creditor” of a particular person includes a person to whom the particular person is obligated to pay an amount under a mortgage, hypothecary claim or similar obligation and, where property was sold to the particular person under a conditional sales agreement, the seller of the property (or any assignee with respect to the agreement) is deemed to be a creditor of the particular person in respect of that property;

“debt”

« dette »

“debt” includes an obligation to pay an amount under a mortgage, hypothecary claim or similar obligation or under a conditional sales agreement;

210. The portion of subsection 80.1(1) of the Act before paragraph (a) is replaced by the following:

Marginal note:Expropriation assets acquired as compensation for, or as consideration for sale of, foreign property taken by or sold to foreign issuer

80.1 (1) Where in a taxation year ending coincidentally with or after December 31, 1971 a taxpayer resident in Canada has acquired any bonds, debentures, mortgages, hypothecary claims, notes or similar obligations (in this section referred to as “expropriation assets”) issued by the government of a country other than Canada or issued by a person resident in a country other than Canada and guaranteed by the government of that country,

211. The portion of subsection 87(6) of the Act before paragraph (a) is replaced by the following:

Marginal note:Obligations of predecessor corporation

(6) Notwithstanding subsection (7), where there has been an amalgamation of two or more corporations after May 6, 1974, each taxpayer (except any predecessor corporation) who, immediately before the amalgamation, owned a capital property that was a bond, debenture, mortgage, hypothecary claim, note or other similar obligation of a predecessor corporation (in this subsection referred to as the “old property”) and who received no consideration for the disposition of the old property on the amalgamation other than a bond, debenture, mortgage, hypothecary claim, note or other similar obligation respectively, of the new corporation (in this subsection referred to as the “new property”) is, if the amount payable to the holder of the new property on its maturity is the same as the amount that would have been payable to the holder of the old property on its maturity, deemed

212. Paragraph 116(6)(d) of the Act is replaced by the following:

(d) a bond, debenture, bill, note, mortgage, hypothecary claim or similar obligation; or

213. Subparagraph (d)(i) of the definition “qualified property” in subsection 127(9) of the Act is replaced by the following:

(i) the property is leased in the ordinary course of carrying on a business in Canada by a corporation whose principal business is leasing property, lending money, purchasing conditional sales contracts, accounts receivable, bills of sale, chattel mortgages or hypothecary claims on movables, bills of exchange or other obligations representing all or part of the sale price of merchandise or services, or any combination thereof,

214. (1) Subparagraph 130.1(6)(f)(i) of the English version of the Act is replaced by the following:

(i) debts owing to the corporation that were secured, whether by mortgages, hypothecs or in any other manner, on houses (as defined in section 2 of the National Housing Act) or on property included within a housing project (as defined in that section), and

(2) Paragraph 130.1(6)(g) of the English version of the Act is replaced by the following:

(g) the cost amount to the corporation of all real property of the corporation, including leasehold interests in such property, (except real property acquired by the corporation by foreclosure or otherwise after default made on a mortgage, hypothec or agreement of sale of real property) did not exceed 25% of the cost amount to it of all its property;

215. (1) Subparagraph (b)(i) of the definition “non-resident-owned investment corporation” in subsection 133(8) of the Act is replaced by the following:

(i) ownership of, or trading or dealing in, bonds, shares, debentures, mortgages, hypothecary claims, bills, notes or other similar property or any interest therein,

(2) Subparagraph (d)(ii) of the definition “non-resident-owned investment corporation” in subsection 133(8) of the Act is replaced by the following:

(ii) trading or dealing in bonds, shares, debentures, mortgages, hypothecary claims, bills, notes or other similar property or any interest therein,

216. (1) Subparagraphs 137.1(1)(b)(i) and (ii) of the Act are replaced by the following:

(i) the total of profits or gains made in the year by the corporation in respect of bonds, debentures, mortgages, hypothecary claims, notes or other similar obligations owned by it that were disposed of by it in the year, and

(ii) the total of each such portion of each amount, if any, by which the principal amount, at the time it was acquired by the corporation, of a bond, debenture, mortgage, hypothecary claim, note or other similar obligation owned by the corporation at the end of the year exceeds the cost to the corporation of acquiring it as was included by the corporation in computing its profit for the year.

(2) Paragraphs 137.1(3)(a) and (b) of the Act are replaced by the following:

(a) the total of losses sustained in the year by the corporation in respect of bonds, debentures, mortgages, hypothecary claims, notes or other similar obligations owned by it and issued by a person other than a member institution that were disposed of by it in the year;

(b) the total of each such portion of each amount, if any, by which the cost to the corporation of acquiring a bond, debenture, mortgage, hypothecary claim, note or other similar obligation owned by the corporation at the end of the year exceeds the principal amount of the bond, debenture, mortgage, hypothecary claim, note or other similar obligation, as the case may be, at the time it was so acquired as was deducted by the corporation in computing its profit for the year;

(3) The portion of paragraph (a) of the definition “investment property” in subsection 137.1(5) of the Act before subparagraph (i) is replaced by the following:

(a) bonds, debentures, mortgages, hypothecary claims, notes or other similar obligations

217. (1) The portion of paragraph 137.2(a) of the Act before subparagraph (i) is replaced by the following:

(a) property of the corporation that is a bond, debenture, mortgage, hypothecary claim, note or other similar obligation owned by it at the commencement of the corporation’s 1975 taxation year shall be valued at its cost to the corporation less the total of all amounts that, before that time, the corporation was entitled to receive as, on account or in lieu of payment of, or in satisfaction of, the principal amount of the bond, debenture, mortgage, hypothecary claim, note or other similar obligation,

(2) Paragraph 137.2(c) of the English version of the Act is replaced by the following:

(c) property of the corporation (other than property in respect of which any amount for the year has been included under paragraph (a)) that was acquired, by foreclosure or otherwise, after default made under a mortgage or hypothec shall be valued at its cost amount to the corporation; and

218. The portion of subsection 138(11.93) of the Act before paragraph (a) is replaced by the following:

Marginal note:Property acquired on default in payment

(11.93) Where, at any time in a taxation year of an insurer, the beneficial ownership of property is acquired or reacquired by the insurer in consequence of the failure to pay all or any part of an amount (in this subsection referred to as the “insurer’s claim”) owing to the insurer at that time in respect of a bond, debenture, mortgage, hypothecary claim, agreement of sale or any other form of indebtedness owned by the insurer, the following rules apply to the insurer:

219. Paragraph (a) of the definition “specified debt obligation” in subsection 142.2(1) of the Act is replaced by the following:

(a) a loan, bond, debenture, mortgage, hypothecary claim, note, agreement of sale or any other similar indebtedness, or

220. Paragraph (d) of the definition “financial institution” in subsection 181(1) of the Act is replaced by the following:

(d) authorized under the laws of Canada or a province to accept deposits from the public and carries on the business of lending money on the security of real estate or investing in mortgages or hypothecary claims on real estate,

221. (1) Paragraph 181.2(3)(d) of the Act is replaced by the following:

(d) the amount of all indebtedness of the corporation at the end of the year represented by bonds, debentures, notes, mortgages, hypothecary claims, banker’s acceptances or similar obligations,

(2) Paragraph 181.2(4)(c) of the Act is replaced by the following:

(c) a bond, debenture, note, mortgage, hypothecary claim or similar obligation of another corporation (other than a financial institution),

(3) Paragraph 181.2(4)(d.1) of the Act is replaced by the following:

(d.1) a loan or advance to, or a bond, debenture, note, mortgage, hypothecary claim or similar obligation of, a partnership all of the members of which, throughout the year, were other corporations (other than financial institutions) that were not exempt from tax under this Part (otherwise than because of paragraph 181.1(3)(d)),

(4) Paragraph 181.2(6)(b) of the Act is replaced by the following:

(b) acquired any bond, debenture, note, mortgage, hypothecary claim or similar obligation of nor issued any bond, debenture, note, mortgage, hypothecary claim or similar obligation to

222. Paragraph (c) of the definition “financial institution” in subsection 190(1) of the Act is replaced by the following:

(c) is authorized under the laws of Canada or a province to accept deposits from the public and carries on the business of lending money on the security of real estate or investing in mortgages or hypothecary claims on real estate;

223. Paragraph (b) of the definition “qualified investment” in section 204 of the Act is replaced by the following:

(b) bonds, debentures, notes, mortgages, hypothecary claims or similar obligations described in clause 212(1)(b)(ii)(C), whether issued before, on or after April 15, 1966,

224. (1) Clause 204.4(2)(a)(ii)(A) of the Act is replaced by the following:

(A) the fair market value at the time of acquisition of its

(I) shares, marketable securities and cash, and

(II) bonds, debentures, mortgages, hypothecary claims, notes and other similar obligations, and

(2) Subparagraph 204.4(2)(a)(iii) of the Act is replaced by the following:

(iii) the fair market value at the time of acquisition of its shares, bonds, mortgages, hypothecary claims and other securities of any one corporation or debtor (other than bonds, mortgages, hypothecary claims and other securities of or guaranteed by Her Majesty in right of Canada or a province or Canadian municipality) is not more than 10% of the amount by which the fair market value at the time of acquisition of all its property exceeds the total of all amounts each of which is an amount owing by it on account of its acquisition of real property,

(3) Clause 204.4(2)(a)(viii)(A) of the Act is replaced by the following:

(A) a mortgage or hypothecary claim (other than a mortgage or hypothecary claim insured under the National Housing Act or by a corporation that offers its services to the public in Canada as an insurer of mortgages and that is approved as a private insurer of mortgages by the Superintendent of Financial Institutions pursuant to the powers assigned to the Superintendent under subsection 6(1) of the Office of the Superintendent of Financial Institutions Act), or an interest therein, in respect of which the mortgagor or hypothecary debtor is the annuitant under a registered retirement savings plan or a registered retirement income fund, or a person with whom the annuitant is not dealing at arm’s length, if any of the funds of a trust governed by such a plan or fund have been used to acquire an interest in the applicant, or

(4) Subsections (1) and (3) apply to property acquired after March 16, 2001.

225. The portion of subsection 204.6(2) of the Act before paragraph (a) is replaced by the following:

Marginal note:Tax payable

(2) Where at the end of any month a taxpayer that is a registered investment described in paragraph 204.4(2)(a) or (b) holds property that is a share, bond, mortgage, hypothecary claim or other security of a corporation or debtor (other than bonds, mortgages, hypothecary claims and other securities of or guaranteed by Her Majesty in right of Canada or a province or Canadian municipality), it shall, in respect of that month, pay a tax under this Part equal to 1% of the amount, if any, by which

226. (1) The portion of clause 212(1)(b)(ii)(C) of the Act before subclause (I) is replaced by the following:

(C) bonds, debentures, notes, mortgages, hypothecary claims or similar obligations

(2) Subparagraph 212(1)(b)(viii) of the Act is replaced by the following:

(viii) interest payable on a mortgage, hypothecary claim or similar obligation secured by, or on an agreement for sale or similar obligation with respect to, real property situated outside Canada or an interest in any such real property except to the extent that the interest payable on the obligation is deductible in computing the income of the payer under Part I from a business carried on by the payer in Canada or from property other than real property situated outside Canada,

(3) Paragraph 212(13)(f) of the Act is replaced by the following:

(f) interest on any mortgage, hypothecary claim or other indebtedness entered into or issued or modified after March 31, 1977 and secured by real property situated in Canada or an interest therein to the extent that the amount so paid or credited is deductible in computing the non-resident person’s taxable income earned in Canada or the amount on which the non-resident person is liable to pay tax under Part I,

(4) Subsection 212(15) of the Act is replaced by the following:

Marginal note:Certain obligations

(15) For the purposes of subparagraph (1)(b)(ii), after November 18, 1974 interest on a bond, debenture, note, mortgage, hypothecary claim or similar obligation that is insured by the Canada Deposit Insurance Corporation is deemed not to be interest with respect to an obligation guaranteed by the Government of Canada.

227. (1) The portion of subsection 214(6) of the Act before paragraph (a) is replaced by the following:

Marginal note:Deemed interest

(6) Where, in respect of interest stipulated to be payable, on a bond, debenture, bill, note, mortgage, hypothecary claim or similar obligation that has been assigned or otherwise transferred by a non-resident person to a person resident in Canada, subsection 20(14) would, if Part I were applicable, require an amount to be included in computing the transferor’s income, that amount is, for the purposes of this Part, deemed to be a payment of interest on that obligation made by the transferee to the transferor at the time of the assignment or other transfer of the obligation, if

(2) Paragraph 214(7)(a) of the Act is replaced by the following:

(a) a non-resident person has at any time assigned or otherwise transferred to a person resident in Canada a bond, debenture, bill, note, mortgage, hypothecary claim or similar obligation issued by a person resident in Canada,

(3) The portion of subsection 214(8) of the Act before paragraph (a) is replaced by the following:

Meaning of “excluded obligation”

(8) For the purposes of subsection (7), “excluded obligation” means any bond, debenture, bill, note, mortgage, hypothecary claim or similar obligation

(4) Paragraph 214(15)(a) of the Act is replaced by the following:

(a) where a non-resident person has entered into an agreement under the terms of which the non-resident person agrees to guarantee the repayment, in whole or in part, of the principal amount of a bond, debenture, bill, note, mortgage, hypothecary claim or similar obligation of a person resident in Canada, any amount paid or credited as consideration for the guarantee is deemed to be a payment of interest on that obligation; and

(5) Subsection (4) is deemed to have come into force on March 1, 1994.

228. The definition “security interest” in subsection 224(1.3) of the English version of the Act is replaced by the following:

“security interest”

« garantie »

“security interest” means any interest in property that secures payment or performance of an obligation and includes an interest created by or arising out of a debenture, mortgage, hypothec, lien, pledge, charge, deemed or actual trust, assignment or encumbrance of any kind whatever, however or whenever arising, created, deemed to arise or otherwise provided for;

229. Paragraph 227(5.1)(i) of the Act is replaced by the following:

(i) an executor, a liquidator of a succession or an administrator;

230. (1) The definitions “legal representative”, “lending asset” and “person” in subsection 248(1) of the Act are replaced by the following:

“legal representative”

« représentant légal »

“legal representative” of a taxpayer means a trustee in bankruptcy, an assignee, a liquidator, a curator, a receiver of any kind, a trustee, an heir, an administrator, an executor, a liquidator of a succession, a committee, or any other like person, administering, winding up, controlling or otherwise dealing in a representative or fiduciary capacity with the property that belongs or belonged to, or that is or was held for the benefit of, the taxpayer or the taxpayer’s estate;

“lending asset”

« titre de crédit »

“lending asset” means a bond, debenture, mortgage, hypothecary claim, note, agreement of sale or any other indebtedness or a prescribed share, but does not include a prescribed property;

“person”

« personne »

“person”, or any word or expression descriptive of a person, includes any corporation, and any entity exempt, because of subsection 149(1), from tax under Part I on all or part of the entity’s taxable income and the heirs, executors, liquidators of a succession, administrators or other legal representatives of such a person, according to the law of that part of Canada to which the context extends;

(2) Subsection 248(4) of the Act is replaced by the following:

Marginal note:Interest in real property

(4) In this Act, an interest in real property includes a leasehold interest in real property but does not include an interest as security only derived by virtue of a mortgage, hypothecary claim, agreement for sale or similar obligation.

(3) The portion of subsection 248(20) of the Act before paragraph (a) is replaced by the following:

Marginal note:Partition of property

(20) Subject to subsections (21) to (23), for the purposes of this Act, where at any time a property owned by two or more persons is the subject of a partition, the following rules apply, notwithstanding any retroactive or declaratory effect of the partition:

(4) The portion of subsection 248(21) of the Act before paragraph (a) is replaced by the following:

Marginal note:Subdivision of property

(21) Where a property that was owned by two or more persons is the subject of a partition among those persons and, as a consequence thereof, each such person has, in the property, a new interest the fair market value of which immediately after the partition, expressed as a percentage of the fair market value of all the new interests in the property immediately after the partition, is equal to the fair market value of that person’s undivided interest immediately before the partition, expressed as a percentage of the fair market value of all the undivided interests in the property immediately before the partition,

(5) Paragraph 248(21)(c) of the Act is replaced by the following:

(c) subdivisions of a building or of a parcel of land that are established in the course of, or in contemplation of, a partition and that are co-owned by the same persons who co-owned the building or the parcel of land, or by their assignee, shall be regarded as one property, and

231. Subsection 256(4) of the Act is replaced by the following:

Marginal note:Saving provision

(4) Where one corporation would, but for this subsection, be associated with another corporation in a taxation year by reason of both of the corporations being controlled by the same executor, liquidator of a succession or trustee and it is established to the satisfaction of the Minister

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

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

the two corporations are deemed, for the purposes of this Act, not to be associated with each other in the year.

R.S., c. 2 (5th Supp.)Income Tax Application Rules

232. (1) The definition “obligation” in subsection 26(12) of the Income Tax Application Rules is replaced by the following:

“obligation”

« obligation »

“obligation” means a bond, debenture, bill, note, mortgage, hypothecary claim or agreement of sale;

(2) The portion of subsection 26(23) of the Rules before paragraph (a) is replaced by the following:

Marginal note:Obligations received on amalgamations

(23) Where, after May 6, 1974, there has been an amalgamation (within the meaning assigned by section 87 of the amended Act) of two or more corporations (each of which is in this subsection referred to as a “predecessor corporation”) to form one corporate entity (in this subsection referred to as the “new corporation”) and a taxpayer has acquired a capital property that was a bond, debenture, note, mortgage, hypothecary claim or other similar obligation of the new corporation (in this subsection referred to as the “new obligation”) as sole consideration for the disposition on the amalgamation of a bond, debenture, note, mortgage, hypothecary claim or other similar obligation respectively of a predecessor corporation (in this subsection referred to as the “old obligation”) owned by the taxpayer on December 31, 1971 and thereafter without interruption until immediately before the amalgamation, notwithstanding any other provision of this Act or of the amended Act, for the purposes of subsection 88(2.1) of the amended Act and of determining the cost to the taxpayer and the adjusted cost base to the taxpayer of the new obligation,

R.S., c. E-15Excise Tax Act

233. Paragraph (a) of the definition “manufacturer or producer” in subsection 2(1) of the Excise Tax Act is replaced by the following:

(a) the assignee, trustee in bankruptcy, liquidator, executor, liquidator of a succession or curator of any manufacturer or producer and, generally, any person who continues the business of a manufacturer or producer or disposes of his assets in any fiduciary capacity, including a bank exercising any powers conferred upon it by the Bank Act and a trustee for bondholders,

Marginal note:R.S., c. 7 (2nd Supp.), s. 38(1)

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

Marginal note:Certificate before distribution

81. (1) Every executor, liquidator of a succession, administrator, assignee, liquidator or other like person, other than a trustee in bankruptcy, shall, before distributing any assets under his control in that capacity, obtain a certificate from the Minister certifying that no tax, penalty, interest or other sum under this Act, other than Part I, chargeable against or payable by that person in that capacity or chargeable against or payable in respect of those assets, remains unpaid or that security for the payment thereof has, in accordance with section 80.1, been accepted by the Minister.

Marginal note:1999, c. 17, s. 151

235. Subsection 106.1(1) of the Act is replaced by the following:

Marginal note:Presumption

106.1 (1) Every document purporting to be an order, direction, notice, certificate, requirement, decision, determination, assessment, discharge of mortgage or acquittance of a hypothecary claim or other document and purporting to have been executed under, or in the course of the administration or enforcement of, this Act or the regulations over the name in writing of the Minister, the Deputy Minister of National Revenue, the Commissioner or an officer authorized by the Minister to exercise his powers or perform his duties or functions under this Act is deemed to be a document signed, made and issued by the Minister, Deputy Minister, Commissioner or officer, unless called into question by the Minister or by some person acting for the Minister or Her Majesty.

Marginal note:1997, c. 10, s. 1(12)

236. The definition “personal representative” in subsection 123(1) of the Act is replaced by the following:

“personal representative”

« représentant personnel »

“personal representative”, of a deceased individual or the estate of a deceased individual, means the executor of the individual’s will, the liquidator of the individual’s succession, the administrator of the estate or any person who is responsible under the appropriate law for the proper collection, administration, disposition and distribution of the assets of the estate;

Marginal note:1994, c. 9, s. 20(1)

237. Paragraph 278(3)(d) of the Act is replaced by the following:

(d) a corporation authorized under the laws of Canada or a province to accept deposits from the public and that carries on the business of lending money on the security of real estate or investing in mortgages or hypothecary claims on real estate.

PART 3R.S., c. 1 (5th Supp.) TECHNICAL AMENDMENTS TO THE INCOME TAX ACT

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

Marginal note: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 taxpayer’s or the taxpayer’s spouse’s or common-law partner’s place of employment while the taxpayer, 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 spouse 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

239. Paragraph 60.01(b) of the French version of the Act is replaced by the following:

b) un montant visé à l’alinéa a) et qu’il est raisonnable de considérer comme provenant de cotisations que verse au mécanisme de retraite étranger une personne autre que le contribuable ou son époux ou conjoint de fait ou ex-époux ou ancien conjoint de fait.

240. Paragraph (a) of the description of A in subsection 60.1(2) of the French version of the Act is replaced by the following:

a) l’époux ou le conjoint de fait ou l’ex-époux ou l’ancien conjoint de fait du contribuable,

241. The portion of the definition “pre-1972 spousal trust” in subsection 108(1) of the Act after paragraph (b) is replaced by the following:

that, throughout the period beginning at the time it was created and ending at the earliest of January 1, 1993, the day on which the taxpayer’s spouse or common-law partner died and the particular time, was a trust under which the taxpayer’s spouse or common-law partner was entitled to receive all of the income of the trust that arose before the spouse’s or common-law partner’s death, unless a person other than the spouse or common-law partner received or otherwise obtained the use of any of the income or capital of the trust before the end of that period;

242. The portion of subparagraph (a)(i) of the definition “interest in a family farm partnership” in subsection 110.6(1) of the English version of the Act after clause (E) is replaced by the following:

principally in the course of carrying on the business of farming in Canada in which the individual, a beneficiary referred to in clause (C) or a spouse, common-law partner, child or parent of the individual or of a beneficiary referred to in clause (C) was actively engaged on a regular and continuous basis,

243. The portion of subsection 118(5) of the English version of the Act before paragraph (a) is replaced by the following:

Marginal note:Support

(5) No amount may be deducted under subsection (1) in computing an individual’s tax payable under this Part for a taxation year in respect of a person where the individual is required to pay a support amount (within the meaning assigned by subsection 56.1(4)) to the individual’s spouse or common-law partner or former spouse or common-law partner in respect of the person and the individual

244. Paragraph 118.2(2)(q) of the English version of the Act is replaced by the following:

(q) as a premium, contribution or other consideration under a private health services plan in respect of one or more of the individual, the individual’s spouse or common-law partner and any member of the individual’s household with whom the individual is connected by blood relationship, marriage, common-law partnership or adoption, except to the extent that the premium, contribution or consideration is deducted under subsection 20.01(1) in computing an individual’s income from a business for any taxation year.

245. Subparagraph 143(5)(b)(i) of the Act is replaced by the following:

(i) the individual is one of two individuals who were married to each other, or in a common-law partnership, at the end of a preceding taxation year of the trust and at the end of the particular year,

246. (1) The definition “spousal plan” in subsection 146(1) of the English version of the Act is repealed.

(2) Subsection 146(1) of the English version of the Act is amended by adding the following in alphabetical order:

“spousal or common-law partner plan”

« régime au profit de l’époux ou du conjoint de fait »

“spousal or common-law partner plan”, in relation to a taxpayer, means

(a) a registered retirement savings plan

(i) to which the taxpayer has, at a time when the taxpayer’s spouse or common-law partner was the annuitant under the plan, paid a premium, or

(ii) that has received a payment out of or a transfer from a registered retirement savings plan or a registered retirement income fund that was a spousal or common-law partner plan in relation to the taxpayer, or

(b) a registered retirement income fund that has received a payment out of or a transfer from a spousal or common-law partner plan in relation to the taxpayer;

(3) The portion of paragraph 146(5.1)(a) of the English version of the Act before subparagraph (i) is replaced by the following:

(a) the total of all amounts each of which is a premium paid by the taxpayer after 1990 and on or before the day that is 60 days after the end of the year under a registered retirement savings plan under which the taxpayer’s spouse or common-law partner (or, where the taxpayer died in the year or within 60 days after the end of the year, an individual who was the taxpayer’s spouse or common-law partner immediately before the death) was the annuitant at the time the premium was paid, other than the portion, if any, of the premium

(4) The portion of subsection 146(8.3) of the English version of the Act before paragraph (a) is replaced by the following:

Marginal note:Spousal or common-law partner payments

(8.3) Where at any time in a taxation year a particular amount in respect of a registered retirement savings plan that is a spousal or common-law partner plan in relation to a taxpayer is required by reason of subsection (8) or paragraph (12)(b) to be included in computing the income of the taxpayer’s spouse or common-law partner before the plan matures or as a payment in full or partial commutation of a retirement income under the plan and the taxpayer is not living separate and apart from the taxpayer’s spouse or common-law partner at that time by reason of the breakdown of their marriage or common-law partnership, there shall be included at that time in computing the taxpayer’s income for the year an amount equal to the lesser of

247. Clause (f)(ii)(B) of the definition “small business property” in subsection 206(1) of the Act is replaced by the following:

(B) the annuitant under the particular fund or plan (or the spouse, common-law partner, former spouse or former common-law partner of that annuitant) is also the annuitant under the fund or plan referred to in clause (A), or

(iii) an annuitant under a registered retirement income fund or registered retirement savings plan that governs the taxpayer, or a spouse, common-law partner, former spouse or former common-law partner of that annuitant;

248. (1) Subject to subsection (2), sections 238 to 247 apply to the 2001 and following taxation years.

(2) If a taxpayer and a person have jointly elected pursuant to section 144 of the Modernization of Benefits and Obligations Act, in respect of the 1998, 1999 or 2000 taxation years, sections 238 to 247 apply to the taxpayer and the person in respect of the applicable taxation year and subsequent taxation years.

PART 4R.S., c. 2 (5th Supp.) INCOME TAX APPLICATION RULES

249. (1) Subsection 26(30) of the Income Tax Application Rules is replaced by the following:

Marginal note:Additions to taxable Canadian property

(30) Subsections (1.1) to (29) do not apply to a disposition by a non-resident person of a property

(a) that the person last acquired before April 27, 1995;

(b) that would not be a taxable Canadian property immediately before the disposition if section 115 of the amended Act were read as it applied to dispositions that occurred on April 26, 1995; and

(c) that would be a taxable Canadian property immediately before the disposition if section 115 of the amended Act were read as it applied to dispositions that occurred on January 1, 1996.

(2) Subsection (1) applies to dispositions that occur after October 1, 1996.

PART 51991, c. 49 AN ACT TO AMEND THE INCOME TAX ACT, THE CANADA PENSION PLAN, THE CULTURAL PROPERTY EXPORT AND IMPORT ACT, THE INCOME TAX CONVENTIONS INTERPRETATION ACT, THE TAX COURT OF CANADA ACT, THE UNEMPLOYMENT INSURANCE ACT, THE CANADA-NEWFOUNDLAND ATLANTIC ACCORD IMPLEMENTATION ACT, THE CANADA-NOVA SCOTIA OFFSHORE PETROLEUM RESOURCES ACCORD IMPLEMENTATION ACT AND CERTAIN RELATED ACTS

250. (1) Subsection 236(1) of An Act to amend the Income Tax Act, the Canada Pension Plan, the Cultural Property Export and Import Act, the Income Tax Conventions Interpretation Act, the Tax Court of Canada Act, the Unemployment Insurance Act, the Canada-Newfoundland Atlantic Accord Implementation Act, the Canada-Nova Scotia Offshore Petroleum Resources Accord Implementation Act and certain related Acts, is amended

(a) by replacing the reference to the words “3/4 of the amount determined under subparagraph (i) in respect of him” in paragraph 26(5)(d) of An Act to amend the Income Tax Act and a related Act, chapter 55 of the Statutes of Canada, 1986, with a reference to the words “the amount determined when the fraction required to be used by him in the year or fiscal period under paragraph 38(a) or (b) is multiplied by the amount determined under subparagraph (i) in respect of him”; and

(b) by replacing the reference to the words “3/4 of the amount determined under subparagraph (i) in respect of the proprietor” in paragraph 26(5)(e) of An Act to amend the Income Tax Act and a related Act, chapter 55 of the Statutes of Canada, 1986, with a reference to the words “the amount determined when the fraction required to be used by the proprietor in the year or fiscal period under paragraph 38(a) or (b) is multiplied by the amount determined under subparagraph (i) in respect of the proprietor”.

(2) Subsection (1) is deemed to have come into force on December 19, 1986.

PART 61998, c. 19 INCOME TAX AMENDMENTS ACT, 1997

251. (1) Subparagraph 131(11)(b)(iv) of the Income Tax Amendments Act, 1997 is replaced by the following:

(iv) the disposition is made by

(A) the individual or the individual’s spouse or common-law partner,

(B) the estate of the individual or of the individual’s spouse or common-law partner within the estate’s first taxation year,

(C) the particular trust where it is a post-1971 spousal or common-law partner trust or a trust described in paragraph 104(4)(a.1) of the Income Tax Act, the individual’s spouse or common-law partner, as the case may be, is the beneficiary referred to in subparagraph (i) and the disposition occurs before the end of the trust’s third taxation year that begins after the death of the individual’s spouse or common-law partner, as the case may be, or

(D) a trust described in paragraph 73(1.01)(c) of that Act created by the individual, or a trust described in paragraph 70(6)(b) of that Act created by the individual’s will in respect of the individual’s spouse or common-law partner, before the end of the trust’s third taxation year that begins after the death of the individual or the individual’s spouse or common-law partner, as the case may be;

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

(a) in respect of the 1998 and 1999 taxation years, where a taxpayer and a person who would have been the taxpayer’s common-law partner in the 1998 or 1999 taxation year jointly elect under section 144 of the Modernization of Benefits and Obligations Act to have sections 130 to 142 of that Act apply, if applicable, to the 1998 or 1999 taxation year, subparagraph 131(11)(b)(iv) of the Income Tax Amendments Act, 1997, as enacted by subsection (1), shall be read as follows for the applicable year:

(iv) the disposition is made by

(A) the individual or the individual’s spouse or common-law partner,

(B) the estate of the individual or of the individual’s spouse or common-law partner within the estate’s first taxation year,

(C) the particular trust where it is a trust described in paragraph 104(4)(a) or (a.1) of the Income Tax Act in respect of a spouse or common-law partner, the spouse or common-law partner is the beneficiary referred to in subparagraph (i) and the disposition occurs before the end of the trust’s third taxation year that begins after the death of the spouse or common-law partner, or

(D) a trust described in paragraph 73(1)(c) of that Act created by the individual in respect of the individual’s spouse or common-law partner, or a trust described in paragraph 70(6)(b) of that Act created by the individual’s will in respect of the individual’s spouse or common-law partner, before the end of the trust’s third taxation year that begins after the death of the spouse or common-law partner;

(b) in respect of the 2000 taxation year, where a joint election has not been filed by the taxpayer and a person who would have been the taxpayer’s common-law partner in the year 2000 to have sections 130 to 142 of the Modernization of Benefits and Obligations Act apply to the year 2000, subparagraph 131(11)(b)(iv) of the Income Tax Amendments Act, 1997, as enacted by subsection (1), shall be read as follows for that year, namely;

(iv) the disposition is made by

(A) the individual or the individual’s spouse,

(B) the estate of the individual or of the individual’s spouse within the estate’s first taxation year,

(C) the particular trust where it is a post-1971 spousal or common-law partner trust or a trust described in paragraph 104(4)(a.1) of the Income Tax Act, the individual or the individual’s spouse, as the case may be, is the beneficiary referred to in subparagraph (i) and the disposition occurs before the end of the trust’s third taxation year that begins after the death of the individual or the individual’s spouse, as the case may be, or

(D) a trust described in paragraph 73(1.01)(c) of that Act created by the individual, or a trust described in paragraph 70(6)(b) of that Act created by the individual’s will in respect of the individual’s spouse, before the end of the trust’s third taxation year that begins after the death of the individual or the individual’s spouse, as the case may be;

252. (1) Section 206 of the Act is amended by replacing the references to “1999” with references to “2001”.

(2) Subsection (1) applies to taxation years that end after 1998.

PART 71999, c. 22 INCOME TAX AMENDMENTS ACT, 1998

253. (1) Subsection 82(8) of the Income Tax Amendments Act, 1998 is replaced by the following:

(8) Subsection (4) applies after February 24, 1998 except that, if on that day an individual who would, but for a tax treaty (as defined in subsection 248(1) of the Income Tax Act, as amended by this Act), be resident in Canada for the purposes of the Income Tax Act is, under the tax treaty, resident in another country, subsection (4) does not apply to the individual until the first time after February 24, 1998 at which the individual becomes, under a tax treaty, resident in a country other than Canada.

(2) Subsection (1) is deemed to have come into force on June 17, 1999.

PART 8R.S., c. C-8 CANADA PENSION PLAN

254. (1) The portion of subsection 12(1) of the Canada Pension Plan before paragraph (a) is replaced by the following:

Marginal note:Amount of contributory salary and wages

12. (1) The amount of the contributory salary and wages of a person for a year is the person’s income for the year from pensionable employment, computed in accordance with the Income Tax Act (read without reference to subsection 7(8) of that Act), plus any deductions for the year made in computing that income otherwise than under paragraph 8(1)(c) of that Act, but does not include

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

PART 9R.S., c. 1 (2nd Supp.) CUSTOMS ACT

255. The Customs Act is amended by adding the following after section 153:

Marginal note:Hindering an officer

153.1 No person shall, physically or otherwise, do or attempt to do any of the following:

(a) interfere with or molest an officer doing anything that the officer is authorized to do under this Act; or

(b) hinder or prevent an officer from doing anything that the officer is authorized to do under this Act.

256. The Act is amended by adding the following after section 160:

Marginal note:Penalty for hindering an officer

160.1 Every person who contravenes section 153.1 is guilty of an offence and, in addition to any penalty otherwise provided, is liable on summary conviction to

(a) a fine of not less than $1,000 and not more than $25,000; or

(b) both a fine described in paragraph (a) and imprisonment for a term not exceeding twelve months.

PART 10R.S., c. E-15 EXCISE TAX ACT

257. The Excise Tax Act is amended by adding the following after section 100:

Marginal note:Compliance

101. Every person who, physically or otherwise, does or attempts to do any of the following:

(a) interfere with or molest any official (in this section having the same meaning as in section 295) doing anything that the official is authorized to do under this Act, or

(b) hinder or prevent any official from doing anything the official is authorized to do under this Act

is guilty of an offence and, in addition to any penalty otherwise provided, is liable on summary conviction to

(c) a fine of not less than $1,000 and not more than $25,000, or

(d) both a fine described in paragraph (c) and imprisonment for a term not exceeding twelve months.

258. The Act is amended by adding the following after section 289:

Marginal note:Compliance order

289.1 (1) On summary application by the Minister, a judge may, despite subsection 326(2), order a person to provide any access, assistance, information or document sought by the Minister under section 288 or 289 if the judge is satisfied that

(a) the person was required under section 288 or 289 to provide the access, assistance, information or document and did not do so; and

(b) in the case of information or a document, the information or document is not protected from disclosure by solicitor-client privilege (within the meaning of subsection 293(1)).

Marginal note:Notice required

(2) An application under subsection (1) must not be heard before the end of five clear days from the day the notice of application is served on the person against whom the order is sought.

Marginal note:Judge may impose conditions

(3) The judge making an order under subsection (1) may impose any conditions in respect of the order that the judge considers appropriate.

Marginal note:Contempt of court

(4) If a person fails or refuses to comply with an order, a judge may find the person in contempt of court and the person is subject to the processes and the punishments of the court to which the judge is appointed.

Marginal note:Appeal

(5) An order by a judge under subsection (1) may be appealed to a court having appellate jurisdiction over decisions of the court to which the judge is appointed. An appeal does not suspend the execution of the order unless it is so ordered by a judge of the court to which the appeal is made.

Marginal note:1990, c. 45, s. 12(1)

259. Subsection 291(2) of the Act is replaced by the following:

Marginal note:Compliance

(2) No person shall, physically or otherwise, do or attempt to do any of the following:

(a) interfere with, hinder or molest any official (in this subsection having the same meaning as in section 295) doing anything the official is authorized to do under this Part, or

(b) prevent any official from doing anything the official is authorized to do under this Part

and every person shall, unless the person is unable to do so, do everything the person is required to do by or pursuant to subsection (1) or any of sections 288 to 290 and 292.

260. Subsection 295(5) of the Act is amended by striking out the word “or” at the end of paragraph (j), by adding the word “or” at the end of paragraph (k) and by adding the following after paragraph (k):

(l) provide confidential information to a police officer (within the meaning assigned by subsection 462.48(17) of the Criminal Code) solely for the purpose of investigating whether an offence has been committed under the Criminal Code, or the laying of an information or the preferring of an indictment, if

(i) such information can reasonably be regarded as being relevant for the purpose of ascertaining the circumstances in which an offence under the Criminal Code may have been committed, or the identity of the person or persons who may have committed an offence, with respect to an official, or with respect to any person related to that official,

(ii) the official was or is engaged in the administration or enforcement of this Part, and

(iii) the offence can reasonably be considered to be related to that administration or enforcement.

Marginal note:1990, c. 45, s. 12(1)

261. The portion of subsection 326(1) of the Act before paragraph (a) is replaced by the following:

Marginal note:Offences

326. (1) Every person who fails to file or make a return as and when required by or under this Part or who fails to comply with subsection 286(2) or 291(2) or with an order made under subsection (2) is guilty of an offence and, in addition to any penalty otherwise provided, is liable on summary conviction to

Marginal note:1999, c. 26, s. 39

262. Paragraph 328(2)(a) of the Act is replaced by the following:

(a) to whom confidential information has been provided for a particular purpose under paragraph 295(5)(b), (c), (g), (k) or (l), or

PART 112000, c. 12 MODERNIZATION OF BENEFITS AND OBLIGATIONS ACT

263. (1) Subsection 134(2) of the English version of the Modernization of Benefits and Obligations Act is replaced by the following:

(2) Paragraph (b) of the definition “member of a congregation” in subsection 143(4) of the Act is replaced by the following:

(b) a child who is unmarried and not in a common-law partnership, other than an adult, of an adult referred to in paragraph (a), if the child lives with the members of the congregation;

(2) Subsection (1) is deemed to have come into force on July 31, 2000.

PART 122000, c. 30 SALES TAX AND EXCISE TAX AMENDMENTS ACT, 1999

264. (1) Section 171 of the French version of the Sales Tax and Excise Tax Amendments Act, 1999 is replaced by the following:

171. Le paragraphe 166.2(2) de la même loi est remplacé par ce qui suit:

(2) La demande se fait par dépôt au greffe de la Cour canadienne de l’impôt, conformément à la Loi sur la Cour canadienne de l’impôt, de trois exemplaires des documents visés au paragraphe 166.1(3) et de trois exemplaires de l’avis visé au paragraphe 166.1(5).

(2) Subsection (1) is deemed to have come into force on October 20, 2000.
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