42-43-44 ELIZABETH II

CHAPTER 3

An Act to amend the Income Tax Act and the Income Tax Application Rules

[Assented to 26th March, 1995]

      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.); 1994, cc. 7, 8, 13, 21, 28, 29

INCOME TAX ACT

1. (1) Subsection 6(4) of the Income Tax Act is replaced by the following:

Group term life insurance

(4) Notwithstanding any exception provided for in paragraph (1)(a), there shall be included in computing a taxpayer's income for a taxation year as income from an office or employment the premium in respect of any period in the year before July 1994 for any excess over $25,000 of the amount of life insurance (other than prescribed insurance) in effect on the taxpayer's life during that period under a group term life insurance policy under which any life insurance was effected on the taxpayer's life in respect of, in the course of or because of, the taxpayer's office or employment or former office or employment, determined as the remainder obtained by

    (a) dividing that proportion of the total premium (other than a prescribed premium) payable on account of life insurance under the policy in respect of the policy year that ends in the year, minus the amount of any dividend or experience rating refund payable on account of life insurance under the policy in respect of the policy year, that the number of days in that period is of the number of days in the policy year, by the mean of the total amount of life insurance (other than prescribed insurance) in effect under the policy at the beginning of the policy year and the total amount of life insurance (other than prescribed insurance) so in effect at the end of the policy year,

    (b) multiplying the quotient obtained under paragraph (a) by the excess over $25,000 of the amount of life insurance (other than prescribed insurance) in effect on the taxpayer's life during that period under the policy, and

    (c) subtracting from the product obtained under paragraph (b) any amount that the taxpayer has reimbursed to the taxpayer's employer, or has paid, in respect of the amount of life insurance (other than prescribed insurance) in excess of $25,000 in effect on the taxpayer's life during that period under the policy,

and in the case of a taxpayer on whose life any life insurance was in effect during any period in the year before July 1994 under more than one such group insurance policy,

    (d) this subsection shall be read as requiring a separate determination of the amount or amounts, if any, to be included in computing the taxpayer's income for the year in respect of each particular policy, and

    (e) the expression ``$25,000'' in this subsection shall be read as referring, in respect of a particular policy, to that proportion of $25,000 that the amount of life insurance (other than prescribed insurance) in effect on the taxpayer's life during that period under the policy is of the total amount of life insurance (other than prescribed insurance) in effect on the taxpayer's life during that period under all of the policies.

(2) Subsection 6(4) of the Act is replaced by the following:

Group term life insurance

(4) Where at any time in a taxation year a taxpayer's life is insured under a group term life insurance policy, there shall be included in computing the taxpayer's income for the year from an office or employment the amount, if any, prescribed for the year in respect of the insurance.

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

(4) Subsection (1) applies to insurance provided in respect of periods that are in 1994 and before July 1994.

(5) Subsection (2) applies to insurance provided in respect of periods that are after June 1994.

(6) Subsection (3) applies to the 1995 and subsequent taxation years.

2. (1) Subsection 12(1) of the Act is amended by striking out the word ``and'' at the end of paragraph (y) and by adding the following after paragraph (z):

Mining reclamation trusts

    (z.1) the total of all amounts received by the taxpayer in the year as a beneficiary under a mining reclamation trust, whether or not such amounts are included because of subsection 107.3(1) in computing the taxpayer's income for any taxation year; and

Dispositions of interests in mining reclamation trusts

    (z.2) the total of all amounts each of which is the consideration received by the taxpayer in the year for the disposition to another person or partnership of all or part of the taxpayer's interest as a beneficiary under a mining reclamation trust, other than consideration that is the assumption of a mining reclamation obligation in respect of the trust.

(2) Subsection (1) applies to taxation years that end after February 22, 1994.

3. (1) Section 12.3 of the Act is replaced by the following:

Transition inclusion re unpaid claims reserve

12.3 Where an amount has been deducted under subsection 20(26) in computing the income of an insurer for its taxation year that includes February 23, 1994, there shall be included in computing the insurer's income for that taxation year and each subsequent taxation year that begins before 2004, the prescribed portion for the year of the amount so deducted.

(2) Subsection (1) applies to taxation years that end after February 22, 1994.

4. (1) Clause 13(7)(e)(i)(B) of the Act is amended by striking out the word ``and'' at the end of subclause (II), by adding the word ``and'' at the end of subclause (III) and by adding the following after subclause (III):

          (IV) the amount, if any, required by subsection 110.6(21) to be deducted in computing the capital cost to the taxpayer of the property at that time

(2) Subsection 13(7) of the Act is amended by adding the following after paragraph (e):

    (e.1) where a taxpayer is deemed by paragraph 110.6(19)(a) to have disposed of and reacquired a property that immediately before the disposition was a depreciable property, the taxpayer shall be deemed to have acquired the property from himself, herself or itself and, in so having acquired the property, not to have been dealing with himself, herself or itself at arm's length;

(3) Section 13 of the Act is amended by adding the following after subsection (18):

Ascertainment of certain property

(18.1) For the purpose of determining whether property meets the criteria set out in the Regulations in respect of prescribed energy conservation property, the Technical Guide to Class 43.1, as amended from time to time and published by the Department of Energy, Mines and Resources, shall apply conclusively with respect to engineering and scientific matters.

(4) Subsections (1) and (2) apply to the 1994 and subsequent taxation years.

(5) Subsection (3) applies to property acquired after February 21, 1994.

Conditional amendment re Bill C-48

(6) If Bill C-48, introduced in the first session of the thirty-fifth Parliament and entitled An Act to establish the Department of Natural Resources and to amend related Acts is assented to, then, on the later of the day on which this Act is assented to and the day on which that Act comes into force, subsection 13(18.1) of the Income Tax Act is replaced by the following:

Ascertainment of certain property

(18.1) For the purpose of determining whether property meets the criteria set out in the Regulations in respect of prescribed energy conservation property, the Technical Guide to Class 43.1, as amended from time to time and published by the Department of Natural Resources, shall apply conclusively with respect to engineering and scientific matters.

5. (1) Subparagraph 14(1)(a)(v) of the Act is replaced by the following:

      (v) there shall be included in computing the taxpayer's income from the business for the year the amount determined by the formula

A - B - C - D

      where

      A is the excess,

      B 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,

      C 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

      D is such amount as the taxpayer claims, not exceeding the taxpayer's exempt gains balance in respect of the business for the year

      and, for the purposes of section 110.6 and of paragraph 3(b) as it applies for the purposes of that section, the total of all amounts each of which is the portion of the amount so included that can reasonably be attributed to proceeds of a disposition in the year of a qualified farm property (within the meaning assigned by subsection 110.6(1)) in excess of the taxpayer's cost of the property shall be deemed to be a taxable capital gain of the taxpayer from the disposition in the year of qualified farm property.

(2) The description of B in the definition ``cumulative eligible capital'' in subsection 14(5) of the Act is replaced by the following:

    B is the total of

        (a) all amounts each of which is the amount that would have been included under subparagraph (1)(a)(v) in computing the taxpayer's income from the business for a taxation year that ended before that time and after February 22, 1994 if the amount determined for D in that subparagraph for the year were nil,

        (b) 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 the taxpayer's adjustment time, and

        (c) all taxable capital gains included, because of the application of subparagraph (1)(a)(v) to the taxpayer in respect of the business, in computing the taxpayer's income for taxation years that began before February 23, 1994.

(3) Subsection 14(5) of the Act is amended by adding the following in alphabetical order:

``exempt gains balance''
« solde des gains exonérés »

``exempt gains balance'' of an individual in respect of a business of the individual for a taxation year means the amount determined by the formula

A - B

    where

    A is the lesser of

        (a) the amount by which

          (i) the amount that would have been the individual's taxable capital gain determined under paragraph 110.6(19)(b) in respect of the business if

            (A) the amount designated in an election under subsection 110.6(19) in respect of the business were equal to the fair market value at the end of February 22, 1994 of all the eligible capital property owned by the elector at that time in respect of the business, and

            (B) this Act were read without reference to subsection 110.6(20)

        exceeds

          (ii) the amount determined by the formula

0.75(C - 1.1D)

          where

          C is the amount designated in the election that was made under subsection 110.6(19) in respect of the business, and

          D is the fair market value at the end of February 22, 1994 of the property referred to in clause (i)(A), and

        (b) the individual's taxable capital gain determined under paragraph 110.6(19)(b) in respect of the business, and

    B 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.

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

Effect of election under subsection 110.6(19)

(9) Where an individual elects under subsection 110.6(19) in respect of a business, the individual shall be deemed to have received proceeds of a disposition on February 23, 1994 of eligible capital property in respect of the business equal to the amount determined by the formula

(A - B) 4/3

where

A is the amount determined in respect of the business under subparagraph (a)(ii) of the description of A in the definition ``exempt gains balance'' in subsection (5), and

B is the amount determined in respect of the business under subparagraph (a)(i) of the description of A in the definition ``exempt gains balance'' in subsection (5).

(5) Subsections (1) to (4) apply to fiscal periods that end after February 22, 1994 otherwise than because of an election under subsection 25(1) of the Act.

6. (1) Subparagraph 18(9)(a)(iii) of the Act is replaced by the following:

      (iii) as consideration for insurance in respect of a period after the end of the year, other than

        (A) where the taxpayer is an insurer, consideration for reinsurance, and

        (B) consideration for insurance on the life of an individual under a group term life insurance policy where all or part of the consideration is for insurance that is (or would be if the individual survived) in respect of a period that ends more than 13 months after the consideration is paid;

(2) Section 18 of the Act is amended by adding the following after subsection (9):

Group term life insurance

(9.01) Where

    (a) a taxpayer pays a premium after February 1994 and before 1997 under a group term life insurance policy for insurance on the life of an individual,

    (b) the insurance is for the remainder of the individual's lifetime, and

    (c) no further premiums will be payable for the insurance,

no amount may be deducted in computing the taxpayer's income for a taxation year from a business or property in respect of the premium except that there may be so deducted,

    (d) where the year is the taxation year in which the premium was paid or a subsequent taxation year and the individual is alive at the end of the year, the lesser of

      (i) the amount determined by the formula

A - B

    and

      (ii) 1/3 of the amount determined by the formula

A x C/365