(ii) in any other case, its adjusted cost base to the taxpayer immediately before the death,
	and the spouse or trust, as the case may be, shall be deemed to have acquired the property at the time of the death at a cost equal to those proceeds,
	(7) Subparagraph 70(6)(d.1)(ii) of the Act is replaced by the following:
	(ii) the spouse or the trust, as the case may be, shall be deemed to have acquired the property at the time of the death at a cost equal to its cost to the taxpayer, and
	(8) The portion of subsection 70(9) of the Act after paragraph (a) is replaced by the following:
	(b) the taxpayer shall be deemed to have, immediately before the taxpayer's death, disposed of the property and received proceeds of disposition therefor equal to
	(i) where the property was depreciable property of a prescribed class, the lesser of the capital cost and the cost amount to the taxpayer of the property immediately before the death, and
	(ii) where the property is land (other than land to which subparagraph (i) applies), its adjusted cost base to the taxpayer immediately before the death,
	and the child shall be deemed to have acquired the property at the time of the death at a cost equal to those proceeds, and
	(c) where the property was depreciable property of a prescribed class, paragraphs (5)(c) and (d) apply as if the references therein to ``paragraph (a)'' and ``paragraph (b)'' were read as ``paragraph (9)(b)'',
	except that, where the taxpayer's legal representative so elects in the taxpayer's return of income under this Part for the year in which the taxpayer died, paragraph (b) shall be read as follows:
	``(b) the taxpayer shall be deemed to have, immediately before the taxpayer's death, disposed of the property and received proceeds of disposition therefor equal to such amount as the legal representative elects in the taxpayer's return of income under this Part for the year in which the taxpayer died, not greater than the greater of nor less than the lesser of
	(i) where the property was depreciable property of a prescribed class,
	(A) its fair market value immediately before the death, and
	(B) the lesser of the capital cost and the cost amount to the taxpayer of the property immediately before the death, and
	(ii) where the property is land (other than land to which subparagraph (i) applies),
	(A) its fair market value immediately before the death, and
	(B) its adjusted cost base to the taxpayer immediately before the death,
	and the child shall be deemed to have acquired the property at the time of the death at a cost equal to those proceeds, except that for the purpose of this paragraph, where the elected amount exceeds the greater of the amounts determined under clauses (i)(A) and (B) or (ii)(A) and (B), as the case may be, it shall be deemed to be equal to the greater thereof, and where the elected amount is less than the lesser of the amounts determined under clauses (i)(A) and (B) or (ii)(A) and (B), as the case may be, it shall be deemed to be equal to the lesser thereof, and''.
	(9) The portion of subsection 70(9.1) of the Act after paragraph (a) is replaced by the following:
	(b) the trust shall be deemed to have, immediately before the spouse's death, disposed of the property and received proceeds of disposition therefor equal to
	(i) where the property was depreciable property of a prescribed class, the lesser of the capital cost and the cost amount to the trust of the property immediately before the death, and
	(ii) where the property is land (other than land to which subparagraph (i) applies), its adjusted cost base to the trust immediately before the death,
	and the child shall be deemed to have acquired the property at the time of the death at a cost equal to those proceeds,
	(c) where any depreciable property of a prescribed class that is deemed by paragraph (b) to have been disposed of by the trust is acquired by a child of the taxpayer as a consequence of the spouse's death (other than where the trust's proceeds of disposition of the property under paragraph (b) are redetermined under subsection 13(21.1)) and the amount that was the capital cost to the trust of the property exceeds the amount determined under paragraph (b) to be the cost to the child of the property, for the purposes of sections 13 and 20 and any regulations made for the purpose of paragraph 20(1)(a),
	(i) its capital cost to the child shall be deemed to be the amount that was its capital cost to the trust, and
	(ii) the excess shall be deemed to have been allowed to the child 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 child acquired the property, and
	(d) where the property of the trust that is deemed by paragraph (b) to have been disposed of is acquired by a child of the taxpayer as a consequence of the spouse's death and the trust's proceeds of disposition of the property under paragraph (b) are redetermined under subsection 13(21.1), notwithstanding paragraph (b),
	(i) where the property was depreciable property of a prescribed class and the amount that was its capital cost to the trust exceeds the amount so redetermined under subsection 13(21.1), for the purposes of sections 13 and 20 and any regulations made for the purpose of paragraph 20(1)(a),
	(A) its capital cost to the child shall be deemed to be the amount that was its capital cost to the trust, and
	(B) the excess shall be deemed to have been allowed to the child 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 child acquired the property, and
	(ii) where the property is land (other than land to which subparagraph (i) applies), its cost to the child shall be deemed to be the amount that was the trust's proceeds of disposition as redetermined under subsection 13(21.1),
	except that, where the trust so elects in its return of income under this Part for its taxation year in which the spouse died, paragraph (b) shall be read as follows:
	``(b) the trust shall be deemed to have, immediately before the spouse's death, disposed of the property and received proceeds of disposition therefor equal to such amount as the trust elects in its return of income under this Part for the year in which the spouse died, not greater than the greater of nor less than the lesser of
	(i) where the property was depreciable property of a prescribed class,
	(A) its fair market value immediately before the death, and
	(B) the lesser of the capital cost and the cost amount to the trust of the property immediately before the death, and
	(ii) where the property is land (other than land to which subparagraph (i) applies),
	(A) its fair market value immediately before the death, and
	(B) its adjusted cost base to the trust immediately before the death,
	and the child shall be deemed to have acquired the property at the time of the death at a cost equal to those proceeds, except that for the purpose of this paragraph, where the elected amount exceeds the greater of the amounts determined under clauses (i)(A) and (B) or (ii)(A) and (B), as the case may be, it shall be deemed to be equal to the greater thereof, and where the elected amount is less than the lesser of the amounts determined under clauses (i)(A) and (B) or (ii)(A) and (B), as the case may be, it shall be deemed to be equal to the lesser thereof,''.
	(10) The portion of subsection 70(9.2) of the Act after paragraph (a) is replaced by the following:
	(b) where the property is a share of the capital stock of a family farm corporation, the taxpayer shall be deemed to have, immediately before the taxpayer's death, disposed of the property and received proceeds of disposition therefor equal to its adjusted cost base to the taxpayer immediately before the death, and the child shall be deemed to have acquired the property at the time of the death at a cost equal to those proceeds, and
	(c) where the property is an interest in a family farm partnership (other than an interest in a partnership to which subsection 100(3) applies),
	(i) the taxpayer shall, except for the purpose of paragraph 98(5)(g), be deemed not to have disposed of the property as a consequence of the taxpayer's death,
	(ii) the child shall be deemed to have acquired the property at the time of the death at a cost equal to the cost to the taxpayer of the interest, and
	(iii) each amount added or deducted in computing the adjusted cost base to the taxpayer of the property shall be deemed to be required by subsection 53(1) or (2) to be added or deducted, as the case may be, in computing its adjusted cost base to the child,
	except that, where the taxpayer's legal representative so elects in the taxpayer's return of income under this Part for the year in which the taxpayer died, paragraph (c) does not apply and paragraph (b) shall be read as follows:
	``(b) the taxpayer shall be deemed to have, immediately before the taxpayer's death, disposed of the property and received proceeds of disposition therefor equal to such amount as the legal representative elects in the taxpayer's return of income under this Part for the year in which the taxpayer died, not greater than the greater of nor less than the lesser of
	(i) its fair market value immediately before the death, and
	(ii) its adjusted cost base to the taxpayer immediately before the death,
	and the child shall be deemed to have acquired the property at the time of the death at a cost equal to those proceeds, except that for the purpose of this paragraph, where the elected amount exceeds the greater of the amounts determined under subparagraphs (i) and (ii), it shall be deemed to be equal to the greater thereof, and where the elected amount is less than the lesser of the amounts determined under subparagraphs (i) and (ii), it shall be deemed to be equal to the lesser thereof, and''.
	(11) Section 70 of the Act is amended by adding the following after subsection (12):
Capital cost of certain depreciable property	(13) For the purposes of this section and, where a provision of this section (other than this subsection) applies, for the purposes of sections 13 and 20 (but not for the purposes of any regulation made for the purpose of paragraph 20(1)(a)),
	(a) the capital cost to a taxpayer of depreciable property of a prescribed class disposed of immediately before the taxpayer's death, or
	(b) the capital cost to a trust, to which subsection (9.1) applies, of depreciable property of a prescribed class disposed of immediately before the death of the spouse described in that subsection,
	shall, in respect of property that was not disposed of by the taxpayer or the trust before that time, be the amount that it would be if subsection 13(7) were read without reference to
	(c) the expression ``the lesser of'' in paragraph (b) and clause (d)(i)(A) thereof, and
	(d) subparagraph (b)(ii), subclause (d)(i)(A)(II), clause (d)(i)(B) and paragraph (e) thereof.
Order of disposal of depreciable property	(14) Where 2 or more depreciable properties of a prescribed class are disposed of at the same time as a consequence of a taxpayer's death, this section and paragraph (a) of the definition ``cost amount'' in subsection 248(1) apply as if each property so disposed of were separately disposed of in the order designated by the taxpayer's legal representative or, in the case of a trust described in subsection (9.1), by the trust and, where the taxpayer's legal representative or the trust, as the case may be, does not designate an order, in the order designated by the Minister.
	(12) Subsection (1) applies to the 1992 and subsequent taxation years.
	(13) Subsections (2) to (11) apply to dispositions and acquisitions occurring after 1992.
	34. (1) The portion of subsection 73(1.1) of the Act before paragraph (a) is replaced by the following:
Interpretation	(1.1) For greater certainty, where, under the laws of a province or because of a decree, order or judgment of a competent tribunal made in accordance with those laws, a person referred to in subsection (1)
	(2) Subsection (1) applies to transfers occurring after July 13, 1990.
	35. (1) Paragraph 84(1)(c.3) of the Act is replaced by the following:
	(c.3) where the corporation is neither an insurance corporation nor a bank, any action by which it converts into paid-up capital in respect of a class of shares of its capital stock any of its contributed surplus that arose after March 31, 1977
	(i) on the issuance of shares of that class or shares of another class for which the shares of that class were substituted (other than an issuance to which section 51, 66.3, 84.1, 85, 85.1, 86 or 87, subsection 192(4.1) or 194(4.1) or section 212.1 applied),
	(ii) on the acquisition of property by the corporation from a person who at the time of the acquisition held any of the issued shares of that class or shares of another class for which shares of that class were substituted for no consideration or for consideration that did not include shares of the capital stock of the corporation, or
	(iii) as a result of any action by which the paid-up capital in respect of that class of shares or in respect of shares of another class for which shares of that class were substituted was reduced by the corporation, to the extent of the reduction in paid-up capital that resulted from the action,
	(2) Section 84 of the Act is amended by adding the following after subsection (10):
Computation of contributed surplus	(11) For the purpose of subparagraph (1)(c.3)(ii), where the property acquired by the corporation (in this subsection referred to as the ``acquiring corporation'') consists of shares (in this subsection referred to as the ``subject shares'') of any class of the capital stock of another corporation resident in Canada (in this subsection referred to as the ``subject corporation'') and, immediately after the acquisition of the subject shares, the subject corporation would be connected (within the meaning that would be assigned by subsection 186(4) if the references in that subsection to ``payer corporation'' and ``particular corporation'' were read as ``subject corporation'' and ``acquiring corporation'', respectively) with the acquiring corporation, the contributed surplus of the acquiring corporation that arose on the acquisition of the subject shares shall be deemed to be the lesser of
	(a) the amount added to the contributed surplus of the acquiring corporation on the acquisition of the subject shares, and
	(b) the amount, if any, by which the paid-up capital in respect of the subject shares at the time of the acquisition exceeded the fair market value of any consideration given by the acquiring corporation for the subject shares.
	(3) Subsection (1) applies to actions occurring after July 13, 1990, except that for such actions occurring before December 21, 1992, subparagraph 84(1)(c.3)(iii) of the Act, as enacted by subsection (1), shall be read as follows:
	(iii) on the reduction by the corporation of the paid-up capital in respect of that class of shares or in respect of shares of another class for which shares of that class were substituted,
	(4) Subsection (2) applies to actions occurring after December 20, 1992.
	36. (1) Paragraph 85(1)(d.1) of the Act is replaced by the following:
	(d.1) for the purpose of determining after the time of the disposition the amount to be included under paragraph 14(1)(b) in computing the corporation's income, there shall be added to the amount otherwise determined for Q in the definition ``cumulative eligible capital'' in subsection 14(5) the amount determined by the formula
	(A x B ) - 2[(D + E) - (F + G)] C
	where
	A is the amount, if any, determined for Q in that definition in respect of the taxpayer's business immediately before the time of the disposition,
	B is the fair market value immediately before that time of the eligible capital property disposed of to the corporation by the taxpayer,
	C is the fair market value immediately before that time of all eligible capital property of the taxpayer in respect of the business,
	D is the amount, if any, that would be included under subsection 14(1) in computing the taxpayer's income as a result of the disposition if paragraph 14(1)(b) were read as follows:
	``(b) in any other case, the excess shall be included in computing the taxpayer's income from that business for that year.'',
	E is the amount, if any, that would be deemed under subsection 14(1) to be a taxable capital gain of the taxpayer as a result of the disposition if clause 14(1)(a)(v)(B) were read as follows:
	``(B) zero''