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45. (1) The portion of subsection 20(3) of
the Act after paragraph (b) is replaced by
the following:
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subject to subsection 20.1(6), the borrowed
money shall, for the purposes of paragraphs
(1)(c), (e) and (e.1), subsections 20.1(1) and
(2), section 21 and subparagraph 95(2)(a)(ii)
and for the purpose of paragraph 20(1)(k) of
the Income Tax Act, Chapter 148 of the
Revised Statutes of Canada, 1952, be deemed
to have been used for the purpose for which the
money previously borrowed was used or was
deemed by this subsection to have been used,
or to acquire the property in respect of which
the amount was payable, as the case may be.
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(2) Subsection (1) applies to expenses
incurred in taxation years that begin after
1994 except that, where there has been a
change in the taxation year of a foreign
affiliate of a taxpayer in 1994 and after
February 22, 1994, subsection (1) applies to
expenses incurred in taxation years of the
foreign affiliate of the taxpayer that end
after 1994, unless
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(a) such 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
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(b) the first taxation year of such foreign
affiliate that began after 1994 began at a
time in 1995 that is earlier than the time
that that taxation year would have begun
if there had not been that change in the
taxation year of such foreign affiliate.
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46. (1) The definition ``foreign affiliate''
in subsection 95(1) of the Act is replaced by
the following:
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``foreign
affiliate''
« societé
étrangère
affiliée »
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``foreign affiliate'', at any time, of a taxpayer
resident in Canada means a non-resident
corporation in which, at that time,
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(a) the taxpayer's equity percentage is
not less than 1%, and
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(b) the total of the equity percentages in
the corporation of the taxpayer and of
each person related to the taxpayer
(where each such equity percentage is
determined as if the determinations
under paragraph (b) of the definition
``equity percentage'' in subsection (4)
were made without reference to the
equity percentage of any person in the
taxpayer or in any person related to the
taxpayer) is not less than 10%,
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except that a corporation is not a foreign
affiliate of a non-resident-owned
investment corporation;
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(2) The description of D in the definition
``foreign accrual property income'' in
subsection 95(1) of the Act is replaced by the
following:
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D is the total of the affiliate's losses for the
year from property and businesses (other
than active businesses) determined as if
there were not included in the affiliate's
income any amount described in any of
paragraphs (a) to (d) of the description of
A and as if each amount described in
clause (2)(a)(ii)(D) that was paid or
payable, directly or indirectly, by the
affiliate to another foreign affiliate of
either the taxpayer or a person with
whom the taxpayer does not deal at arm's
length were nil where an amount in
respect of the income derived by the
other foreign affiliate from that amount
that was paid or payable to it by the
affiliate was added in computing its
income from an active business,
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(3) Subsection 95(1) of the Act is amended
by adding the following in alphabetical
order:
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``active
business''
« entreprise
exploitée
activement »
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``active business'' of a foreign affiliate of a
taxpayer means any business carried on by
the affiliate other than
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(a) an investment business carried on by
the affiliate, or
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(b) a business that is deemed by
subsection (2) to be a business other than
an active business carried on by the
affiliate;
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``foreign
bank''
« banque
étrangère »
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``foreign bank'' means an entity that would be
a foreign bank within the meaning assigned
by the definition of that expression in
section 2 of the Bank Act if
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(a) that definition were read without
reference to the portion thereof after
paragraph (g) thereof, and
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(b) the entity had not been exempt under
section 12 of that Act from being a
foreign bank;
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``income from
an active
business''
« revenu
provenant
d'une
entreprise
exploitée
activement »
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``income from an active business'' of a foreign
affiliate of a taxpayer for a taxation year
includes, for greater certainty, any income
of the affiliate for the year that pertains to or
is incident to that business but does not
include
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(a) other income that is its income from
property for the year, or
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(b) its income for the year from a business
that is deemed by subsection (2) to be a
business other than an active business
carried on by the affiliate;
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``income from
property''
« revenu de
biens »
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``income from property'' of a foreign affiliate
of a taxpayer for a taxation year includes its
income for the year from an investment
business and its income for the year from an
adventure or concern in the nature of trade,
but, for greater certainty, does not include
its income for the year that is because of
subsection (2) included in its income from
an active business or in its income from a
business other than an active business;
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``investment
business''
« entreprise
de
placement »
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``investment business'' of a foreign affiliate of
a taxpayer means a business carried on by
the affiliate in a taxation year (other than a
business deemed by subsection (2) to be a
business other than an active business
carried on by the affiliate) the principal
purpose of which is to derive income from
property (including interest, dividends,
rents, royalties or any similar returns or
substitutes therefor), income from the
insurance or reinsurance of risks, income
from the factoring of trade accounts
receivable, or profits from the disposition of
investment property, unless it is established
by the taxpayer or the affiliate that,
throughout the period in the year during
which the business was carried on by the
affiliate,
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(a) the business (other than any business
conducted principally with persons with
whom the affiliate does not deal at arm's
length) is
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(i) a business carried on by it as a
foreign bank, a trust company, a credit
union, an insurance corporation or a
trader or dealer in securities or
commodities, the activities of which
are regulated in the country in which
the business is principally carried on,
or
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(ii) the development of real estate for
sale, the lending of money, the leasing
or licensing of property or the
insurance or reinsurance of risks, and
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(b) the affiliate or, where the affiliate
carries on the business as a member of a
partnership (except where the affiliate is
a specified member of the partnership in
a fiscal period of the partnership that ends
in the year), the partnership employs
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(i) more than 5 employees full time in
the active conduct of the business, or
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(ii) the equivalent of more than 5
employees full time in the active
conduct of the business taking into
consideration only the services
provided by its employees and the
services provided outside Canada to
the affiliate or the partnership by the
employees of
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(A) a corporation related to the
affiliate (otherwise than because of
a right referred to in paragraph
251(5)(b)), or
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(B) members of the partnership
(other than a member of the
partnership that was a specified
member of the partnership in a fiscal
period of the partnership that ends in
the year)
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where the corporation or members
referred to in clause (A) or (B) receive
compensation from the affiliate or the
partnership for the services provided to
the affiliate or the partnership by those
employees the value of which is not
less than the cost to such corporation or
members of the compensation paid or
accruing to the benefit of those
employees that performed the services
during the time the services were
performed by those employees;
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``investment
property''
« bien de
placement »
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``investment property'' of a foreign affiliate of
a taxpayer includes
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(a) a share of the capital stock of a
corporation other than a share of another
foreign affiliate of the taxpayer that is
excluded property of the affiliate,
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(b) an interest in a partnership other than
an interest in a partnership that is
excluded property of the affiliate,
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(c) an interest in a trust other than an
interest in a trust that is excluded
property of the affiliate,
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(d) indebtedness or annuities,
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(e) commodities or commodities futures
purchased or sold, directly or indirectly
in any manner whatever, on a
commodities or commodities futures
exchange (except commodities
manufactured, produced, grown,
extracted or processed by the affiliate or
a person to whom the affiliate is related
(otherwise than because of a right
referred to in paragraph 251(5)(b)) or
commodities futures in respect of such
commodities),
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(h) Canadian and foreign resource
properties,
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(i) interests in funds or entities other than
corporations, partnerships and trusts, and
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(j) interests or options in respect of
property that is included in any of
paragraphs (a) to (i);
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``lease
obligation''
« obligation
découlant
d'un bail »
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``lease obligation'' of a person includes an
obligation under an agreement that
authorizes the use of or the production or
reproduction of property including
information or any other thing;
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``lending of
money''
« prêt
d'argent »
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``lending of money'' by a person (for the
purpose of this definition referred to as the
``lender'') includes
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(a) the acquisition by the lender of trade
accounts receivable (other than trade
accounts receivable owing by a person
with whom the lender does not deal at
arm's length) from another person or the
acquisition by the lender of any interest
in any such accounts receivable,
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(b) the acquisition by the lender of loans
made by and lending assets (other than
loans or lending assets owing by a person
with whom the lender does not deal at
arm's length) of another person or the
acquisition by the lender of any interest
in such a loan or lending asset,
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(c) the acquisition by the lender of a
foreign resource property (other than a
foreign resource property that is a rental
or royalty payable by a person with
whom the lender does not deal at arm's
length) of another person, and
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(d) the sale by the lender of loans or
lending assets (other than loans or
lending assets owing by a person with
whom the lender does not deal at arm's
length) or the sale by the lender of any
interest in such loans or lending assets;
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``licensing of
property''
« concession
d'une licence
sur un bien »
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``licensing of property'' includes authorizing
the use of or the production or reproduction
of property including information or any
other thing;
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(4) Paragraph 95(2)(a) of the Act is
replaced by the following:
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(a) in computing the income from an active
business for a taxation year of a particular
foreign affiliate of a taxpayer in respect of
which the taxpayer has a qualifying interest
throughout the year there shall be included
any income of the affiliate for that year from
sources in a country other than Canada that
would otherwise be income from property
of the affiliate for the year to the extent that
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(A) is derived by the particular affiliate
from activities that can reasonably be
considered to be directly related to the
active business activities carried on in
a country other than Canada by
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(I) any other non-resident
corporation to which the particular
affiliate and the taxpayer are related
throughout the year, or
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(II) the taxpayer, where the taxpayer
is a life insurance corporation
resident in Canada throughout the
year, and
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(B) would be included in computing
the amount prescribed to be the
earnings or loss from an active
business carried on in a country other
than Canada of
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(I) the non-resident corporation to
which the particular affiliate and the
taxpayer are related throughout the
year, or
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(II) the taxpayer, where the taxpayer
is a life insurance corporation
resident in Canada throughout the
year
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if it were a foreign affiliate of the
taxpayer and the income were earned
by it,
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(ii) the income is derived from amounts
that were paid or payable, directly or
indirectly, to the particular affiliate or a
partnership of which the particular
affiliate was a member
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(I) a non-resident corporation to
which the particular affiliate and the
taxpayer are related throughout the
year, or
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(II) a partnership of which a
non-resident corporation to which
the particular affiliate and the
taxpayer are related throughout the
year is a member and of which that
non-resident corporation is not a
specified member at any time in a
fiscal period of the partnership that
ends in the year
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to the extent that those amounts that
were paid or payable are for
expenditures that would, if the
non-resident corporation or the
partnership were a foreign affiliate of
the taxpayer, be deductible by it in the
year or a subsequent year in computing
the amounts prescribed to be its
earnings or loss from an active
business, other than an active business
carried on in Canada,
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(I) another foreign affiliate of the
taxpayer in respect of which the
taxpayer has a qualifying interest
throughout the year, or
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(II) a partnership of which another
foreign affiliate of the taxpayer in
respect of which the taxpayer has a
qualifying interest throughout the
year is a member and of which that
other affiliate is not a specified
member at any time in a fiscal
period of the partnership that ends in
the year
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to the extent that those amounts that
were paid or payable are for
expenditures that were or would be, if
the partnership were a foreign affiliate
of the taxpayer, deductible in the year
or a subsequent taxation year by the
other affiliate or the partnership in
computing the amounts prescribed to
be its earnings or loss from an active
business, other than an active business
carried on in Canada,
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(C) by a partnership of which the
particular affiliate is a member and of
which the particular affiliate is not a
specified member at any time in a
fiscal period of the partnership that
ends in the year to the extent that those
amounts that were paid or payable
were for expenditures that would be, if
the partnership were a foreign affiliate
of the taxpayer, deductible in the year
or a subsequent year in computing the
amounts prescribed to be its earnings
or loss from an active business carried
on by it outside Canada,
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(D) by another foreign affiliate of the
taxpayer (in this clause referred to as
the ``second affiliate'') to which the
particular affiliate and the taxpayer are
related throughout the year to the
extent that the amounts are paid or
payable by the second affiliate
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(I) under a legal obligation to pay
interest on borrowed money used for
the purpose of earning income from
property, or
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(II) on an amount payable for
property acquired for the purpose of
gaining or producing income from
property
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(III) the property is excluded
property of the second affiliate that
is shares of a foreign affiliate (other
than the particular affiliate) of the
taxpayer in respect of which the
taxpayer has a qualifying interest
throughout the year (in this clause
referred to as the ``third affiliate''),
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(IV) the second and third affiliates
are resident in and subject to income
taxation in the same country, and
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(V) the amounts paid or payable are
relevant in computing the liability
for income taxes in that country of
the members of a group of
corporations composed of the
second affiliate and one or more
other foreign affiliates of the
taxpayer (the shares of which are
excluded property) that are resident
and subject to income taxation in
that country and in respect of which
the taxpayer has a qualifying
interest throughout the year, or
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(E) by the taxpayer, where the
taxpayer is a life insurance corporation
resident in Canada (in this clause
referred to as the ``insurer''), to the
extent that those amounts that were
paid or payable were for expenditures
that are deductible in the year or a
subsequent taxation year by the insurer
in computing its income or loss from
carrying on its life insurance business
outside Canada and are not deductible
in the year or a subsequent taxation
year in computing its income or loss
from carrying on its life insurance
business in Canada,
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(iii) the income is derived by the
particular affiliate from the factoring of
trade accounts receivable acquired by the
particular affiliate or a partnership of
which the particular affiliate was a
member from a non-resident corporation
to which the particular affiliate and the
taxpayer are related throughout the year
to the extent that the accounts receivable
arose in the course of an active business
carried on in a country other than Canada
by the non-resident corporation, or
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(iv) the income is derived by the
particular affiliate from loans or lending
assets acquired by the particular affiliate
or a partnership of which the particular
affiliate was a member from a
non-resident corporation to which the
particular affiliate and the taxpayer are
related throughout the year to the extent
that the loans or lending assets arose in
the course of an active business carried
on in a country other than Canada by the
non-resident corporation;
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