42-43 ELIZABETH II

CHAPTER 21

An Act to amend the Income Tax Act, the Income Tax Application Rules, the Canada Pension Plan, the Canada Business Corporations Act, the Excise Tax Act, the Unemployment Insurance Act and certain related Acts

[Assented to 15th June, 1994]

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

PART I

R.S., c. 1 (5th Supp.); 1991, cc. 47, 49; 1992, cc. 1, 24, 27, 29, 48; 1993, cc. 24, 27

INCOME TAX ACT

1. (1) Subsection 4(2) of the Income Tax Act is replaced by the following:

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(2) Subject to subsection (3), in applying subsection (1) for the purposes of this Part, no deductions permitted by sections 60 to 64 apply either wholly or in part to a particular source or to sources in a particular place.

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

Deductions applicable

(3) In applying subsection (1) for the purposes of subsections 104(22) and (22.1) and sections 115 and 126,

    (a) subject to paragraph (b), all deductions permitted in computing a taxpayer's income for a taxation year for the purposes of this Part, except any deduction permitted by any of paragraphs 60(b) to (o), (p), (r) and (v) to (w), shall apply either wholly or in part to a particular source or to sources in a particular place; and

    (b) any deduction permitted by subsection 104(6) or (12) shall not apply either wholly or in part to a source in a country other than Canada.

(3) Subsection (1) applies to the 1989 and subsequent taxation years.

(4) Subsection (2) applies to taxation years that end after November 12, 1981, except that for taxation years that begin before 1993, subsection 4(3) of the Act, as enacted by subsection (2), shall be read as follows:

(3) The following rules apply for the purposes of this Act:

    (a) in applying paragraph (1)(b) for the purposes of sections 115 and 126, subject to paragraph (b), all deductions permitted in computing a taxpayer's income for a taxation year for the purposes of this Part shall apply either wholly or in part to a particular source or to sources in a particular place; and

    (b) in applying subsection (1) for the purposes of subsections 104(22) and (22.1) and sections 115 and 126,

      (i) any deduction permitted by any of paragraphs 60(b) to (o), (p), (r) and (v) to (w) shall not apply either wholly or in part to a particular source or to sources in a particular place, and

      (ii) any deduction permitted by subsection 104(6) or (12) shall not apply either wholly or in part to a source in a country other than Canada.

2. (1) Subparagraph 6(1)(a)(iii) of the Act is replaced by the following:

      (iii) that was a benefit in respect of the use of an automobile,

(2) Subparagraph 6(1)(b)(xi) of the Act is replaced by the following:

      (xi) where the taxpayer both receives an allowance in respect of that use and is reimbursed in whole or in part for expenses in respect of that use (except where the reimbursement is in respect of supplementary business insurance or toll or ferry charges and the amount of the allowance was determined without reference to those reimbursed expenses);

(3) Subsection 6(1) of the Act is amended by striking out the word ``and'' at the end of paragraph (i) and by adding the following after paragraph (j):

Automobile operating expense benefit

    (k) where

      (i) an amount is determined under subparagraph (e)(i) in respect of an automobile in computing the taxpayer's income for the year,

      (ii) amounts related to the operation (otherwise than in connection with or in the course of the taxpayer's office or employment) of the automobile for the period or periods in the year during which the automobile was made available to the taxpayer or a person related to the taxpayer are paid or payable by the taxpayer's employer or a person related to the taxpayer's employer (each of whom is in this paragraph referred to as the ``payor''), and

      (iii) the total of the amounts so paid or payable is not paid in the year or within 45 days after the end of the year to the payor by the taxpayer or by the person related to the taxpayer,

    the amount in respect of the operation of the automobile determined by the formula

A - B

    where

    A is

          (iv) where the automobile is used primarily in the performance of the duties of the taxpayer's office or employment during the period or periods referred to in subparagraph (ii) and the taxpayer notifies the employer in writing before the end of the year of the taxpayer's intention to have this subparagraph apply, 1/2 of the amount determined under subparagraph (e)(i) in respect of the automobile in computing the taxpayer's income for the year, and

          (v) in any other case, the amount equal to the product obtained when the amount prescribed for the year is multiplied by the total number of kilometres that the automobile is driven (otherwise than in connection with or in the course of the taxpayer's office or employment) during the period or periods referred to in subparagraph (ii), and

    B is the total of all amounts in respect of the operation of the automobile in the year paid in the year or within 45 days after the end of the year to the payor by the taxpayer or by the person related to the taxpayer; and

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    (l) the value of a benefit in respect of the operation of an automobile (other than a benefit to which paragraph (k) applies or would apply but for subparagraph (k)(iii)) received or enjoyed by the taxpayer in the year in respect of, in the course of or because of, the taxpayer's office or employment.

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

Parking cost

(1.1) For the purposes of this section, an amount or a benefit in respect of the use of a motor vehicle by a taxpayer does not include any amount or benefit related to the parking of the vehicle.

(5) Subsection 6(2.2) of the Act is repealed.

(6) Subsections (1) to (5) apply to the 1993 and subsequent taxation years.

3. (1) The portion of subsection 7(1.5) of the Act before paragraph (a) is replaced by the following:

Rules where shares exchanged

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

(2) Subsection (1) applies to the 1992 and subsequent taxation years.

4. (1) The portion of paragraph 8(1)(m.2) of the Act before subparagraph (i) is replaced by the following:

Employee RCA contributions

    (m.2) an amount contributed by the taxpayer in the year to a pension plan in respect of services rendered by the taxpayer where the plan is a prescribed plan established by an enactment of Canada or a province or where

(2) Subparagraph 8(1)(m.2)(iii) of the Act is amended by adding the word ``or'' at the end of clause (A), by striking out the word ``or'' at the end of clause (B) and by repealing clause (C).

(3) Subsection 8(1) of the Act is amended by adding the following after paragraph (o):

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    (o.1) an amount that is deductible in computing the taxpayer's income for the year because of subsection 144(9);

(4) Subsections (1) to (3) apply to the 1992 and subsequent taxation years.

5. (1) Subsection 11(2) of the Act is replaced by the following:

Reference to ``taxation year''

(2) Where an individual's income for a taxation year includes income from a business the fiscal period of which does not coincide with the calendar year, unless the context otherwise requires, a reference in this subdivision or section 80.3 to a ``taxation year'' or ``year'' shall, in respect of the business, be read as a reference to a fiscal period of the business ending in the year.

(2) Subsection (1) applies to the 1988 and subsequent taxation years.

6. (1) The portion of paragraph 12(1)(m) of the Act before subparagraph (i) is replaced by the following:

Benefits from trusts

    (m) any amount required by subdivision k or subsection 132.1(1) to be included in computing the taxpayer's income for the year, except

(2) Subsection 12(3) of the Act is replaced by the following:

Interest income

(3) Notwithstanding paragraph (1)(c), in computing the income for a taxation year of a corporation, partnership, unit trust or any trust of which a corporation or a partnership is a beneficiary, there shall be included any interest on a debt obligation (other than interest in respect of an income bond, an income debenture, a small business development bond, a small business bond, a net income stabilization account or an indexed debt obligation) that accrues to it to the end of the year, or becomes receivable or is received by it before the end of the year, to the extent that the interest was not included in computing its income for a preceding taxation year.

(3) The definition ``investment contract'' in subsection 12(11) of the Act is amended by striking out the word ``and'' at the end of paragraph (j) and by replacing paragraph (k) with the following:

    (k) an indexed debt obligation, and

    (l) a prescribed contract.

(4) Subsection (1) applies to the 1988 and subsequent taxation years.

(5) Subsections (2) and (3) apply to debt obligations issued after October 16, 1991.

7. (1) The portion of subsection 13(7) of the Act before paragraph (a) is replaced by the following:

Rules applicable

(7) Subject to subsection 70(13), for the purposes of paragraphs 8(1)(j) and (p), this section, section 20 and any regulations made for the purpose of paragraph 20(1)(a),

(2) The portion of paragraph 13(7)(e) of the Act before subparagraph (i) is replaced by the following:

    (e) notwithstanding any other provision of this Act except subsection 70(13), where at a particular time a person or partnership (in this paragraph referred to as the ``taxpayer'') has, directly or indirectly, in any manner whatever, acquired (otherwise than as a consequence of the death of the transferor) a depreciable property (other than a timber resource property) of a prescribed class from a person or partnership with whom the taxpayer did not deal at arm's length (in this paragraph referred to as the ``transferor'') and, immediately before the transfer, the property was a capital property of the transferor,

(3) Section 13 of the Act is amended by adding the following after subsection (32):

Considera-
tion given for depreciable property

(33) For greater certainty, where a person acquires a depreciable property for consideration that can reasonably be considered to include a transfer of property, the portion of the cost to the person of the depreciable property attributable to the transfer shall not exceed the fair market value of the transferred property.

(4) Subsections (1) and (2) apply after 1992.

(5) Subsection (3) applies to property acquired after November 1992.

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

Deemed residence in Canada

(8) Where an individual was resident in Canada at any time in a particular taxation year and throughout

    (a) the preceding taxation year, or

    (b) the following taxation year,

for the purpose of paragraph (1)(a), the individual shall be deemed to have been resident in Canada throughout the particular year.

(2) Subsection (1) applies to the 1988 and subsequent taxation years.

9. (1) Paragraph 15(1)(c) of the Act is replaced by the following:

    (c) conferring, on all owners of common shares of the capital stock of the corporation at that time, a right in respect of each common share, that is identical to every other right conferred at that time in respect of each other such share, to acquire additional shares of the capital stock of the corporation, and, for the purpose of this paragraph,

      (i) where

        (A) the voting rights attached to a particular class of common shares of the capital stock of a corporation differ from the voting rights attached to another class of common shares of the capital stock of the corporation, and

        (B) there are no other differences between the terms and conditions of the classes of shares that could cause the fair market value of a share of the particular class to differ materially from the fair market value of a share of the other class,

      the shares of the particular class shall be deemed to be property that is identical to the shares of the other class, and

      (ii) rights are not considered identical if the cost of acquiring the rights differs, or

(2) The portion of subsection 15(1.4) of the Act before the formula is replaced by the following:

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(1.4) Where the amount or value of a benefit (in this subsection referred to as the ``benefit amount'') (other than a benefit referred to in subsection (5)) would be required under subsection (1) to be included in computing a taxpayer's income for a taxation year in respect of a supply, other than a zero-rated supply or an exempt supply (within the meanings assigned by Part IX of the Excise Tax Act), of property or a service if no amount were paid to the corporation or to a person related to the corporation in respect of the amount that would be so required to be included, there shall be included in computing the taxpayer's income for the year the total of all amounts each of which is an amount determined by the formula

(3) Subsection 15(5) of the Act is replaced by the following:

Automobile benefit

(5) For the purpose of subsection (1), the value of the benefit to be included in computing a shareholder's income for a taxation year with respect to an automobile made available to the shareholder, or a person related to the shareholder, by a corporation shall (except where an amount is determined under subparagraph 6(1)(e)(i) in respect of the automobile in computing the shareholder's income for the year) be computed on the assumption that subsections 6(1), (1.1) and (2) apply, with such modifications as the circumstances require, and as though the references therein to ``the employer of the taxpayer'', ``the taxpayer's employer'' and ``the employer'' were read as ``the corporation''.

(4) Subsection (1) applies to benefits conferred after December 19, 1991.

(5) Subsections (2) and (3) apply to the 1993 and subsequent taxation years.

10. (1) The portion of subsection 16(3) of the Act after paragraph (b) is replaced by the following: