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(b) the sale or exchange was made in the
course of a business carried on by the
affiliate principally with persons with
whom the affiliate deals at arm's length in
the country under whose laws the affiliate
was formed or continued and exists and is
governed and in which the business is
principally carried on by it; and
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(c) the terms and conditions of the sale or
exchange of such property are substantially
the same as the terms and conditions of
similar sales or exchanges of such property
by persons dealing at arm's length.
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Application of
paragraph
(2)(a.3)
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(2.4) Paragraph (2)(a.3) does not apply to a
foreign affiliate of a taxpayer in respect of its
income derived directly or indirectly from
indebtedness to the extent that
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(a) the income is derived by the affiliate in
the course of a business conducted
principally with persons with whom the
affiliate deals at arm's length 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 under whose laws the affiliate was
formed or continued and exists and is
governed and in which the business is
principally carried on, and
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(b) the income is derived by the affiliate
from trading or dealing in the indebtedness
(which, for this purpose, consists of income
from the actual trading or dealing in the
indebtedness and interest earned by the
affiliate during a short term holding period
on indebtedness acquired by it for the
purpose of the trading or dealing) with
persons (in this subsection referred to as
``regular customers'') with whom it deals at
arm's length who were resident in a country
other than Canada in which it and any
competitor (which is resident in the country
in which the affiliate is resident and
regulated in the same manner the affiliate is
regulated in the country under whose laws
the affiliate was formed or continued and
exists and is governed and in which its
business is principally carried on) compete
and have a substantial market presence,
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and, for the purpose of this subsection, an
acquisition of indebtedness from the taxpayer
shall be deemed to be part of the trading or
dealing in indebtedness described in
paragraph (b) where the indebtedness is
acquired by the affiliate and sold to regular
customers and the terms and conditions of the
acquisition and the sale are substantially the
same as the terms and conditions of similar
acquisitions and sales made by the affiliate in
transactions with persons with whom it deals
at arm's length.
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Definitions
for paragraph
(2)(a.3)
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(2.5) For the purpose of paragraph (2)(a.3),
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``indebtedness
''
« dette »
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``indebtedness'' does not include obligations
of a person under agreements with
non-resident corporations providing for the
purchase, sale or exchange of currency
where
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(a) the agreements are swap agreements,
forward purchase or sale agreements,
forward rate agreements, futures
agreements, options or rights
agreements, or similar agreements,
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(b) the person is a bank, a trust company,
a credit union, an insurance corporation
or a trader or dealer in securities or
commodities resident in Canada, the
business activities of which are subject
by law to the supervision of a regulating
authority in Canada such as the
Superintendent of Financial Institutions
or a similar authority of a province,
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(c) the agreements are entered into by the
non-resident corporation in the course of
a business carried on by it principally
with persons with which it deals at arm's
length in the country under whose laws
the non-resident corporation was formed
or continued and exists and is governed
and in which the business is principally
carried on by it, and
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(d) the terms and conditions of such
agreements are substantially the same as
the terms and conditions of similar
agreements made by persons dealing at
arm's length;
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``specified
deposit''
« dépôt
déterminé »
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``specified deposit'' means a deposit of a
foreign affiliate of a taxpayer resident in
Canada with a prescribed financial
institution resident in Canada where
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(a) the income from the deposit is income
of the affiliate for the year that would, but
for paragraph (2)(a.3), be income from
an active business carried on by it in a
country other than Canada (other than a
business the principal purpose of which is
to derive income from property including
interest, dividends, rents, royalties or
similar returns or substitutes therefor or
profits from the disposition of investment
property), or
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(b) the income from the deposit is income
of the affiliate for the year that would, but
for paragraph (2)(a.3), be income from
an active business carried on by the
affiliate principally with persons with
whom the affiliate deals at arm's length
in the country under whose laws the
affiliate was formed or continued and
exists and is governed and in which the
business is principally carried on by it
and the deposit was held by the affiliate
in the course of carrying on that part of
the business conducted with non-resident
persons with whom the affiliate deals at
arm's length or that part of the business
conducted with a person with whom the
affiliate was related where it can be
demonstrated that the related person used
or held the funds deposited in the course
of a business carried on by the related
person with non-resident persons with
whom the related person and the affiliate
deal at arm's length.
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(7) Subsection 95(6) of the Act is replaced
by the following:
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Where rights
or shares
issued,
acquired or
disposed of to
avoid tax
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(6) For the purposes of this subdivision
(other than section 90),
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(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 and
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(i) it can reasonably be considered that
the principal purpose for the existence of
the right is to cause 2 or more
corporations to be related for the purpose
of paragraph (2)(a), those corporations
shall be deemed not to be related for that
purpose, or
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(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 shall
be deemed to be owned by that person or
partnership; and
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(b) where a person or partnership acquires
or disposes of shares of the capital stock of
a corporation, either directly or indirectly,
and it can reasonably be considered that the
principal purpose for the acquisition or
disposition of the shares 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,
those shares shall be deemed not to have
been acquired or disposed of, as the case
may be, and where the shares were unissued
by the corporation immediately prior to the
acquisition, those shares shall be deemed
not to have been issued.
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(8) Subsections (1) to (7) apply to taxation
years of foreign affiliates of taxpayers 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, subsections (1) to
(7) apply to taxation years of such 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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47. (1) The definition ``business'' in
subsection 248(1) of the Act is replaced by
the following:
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``business''
« affairs »
« commerce »
« entreprise »
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``business'' includes a profession, calling,
trade, manufacture or undertaking of any
kind whatever and, except for the purposes
of paragraph 18(2)(c), section 54.2,
subsection 95(1) and paragraph
110.6(14)(f), an adventure or concern in the
nature of trade but does not include an
office or employment;
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(2) Subsection (1) applies to taxation
years that end after 1994.
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48. (1) The portion of subsection 18(13) of
the Act before paragraph (a) is replaced by
the following:
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Superficial
loss
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(13) Subject to subsection 142.6(7) and
notwithstanding any other provision of this
Act, where a taxpayer (other than an insurer)
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(2) Subsection (1) applies to dispositions
occurring after October 30, 1994.
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49. (1) Paragraph 39(1)(a) of the Act is
amended by adding the following after
subparagraph (ii.1):
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(ii.2) a property to the disposition of
which subsection 142.4(4) or (5) or
142.5(1) applies,
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(2) Subparagraph 39(1)(b)(ii) of the Act is
replaced by the following:
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(ii) property described in any of
subparagraphs (a)(i), (ii) to (iii) and (v);
and
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(3) Paragraphs 39(5)(b) to (e) of the Act
are replaced by the following:
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(b) a financial institution (as defined in
subsection 142.2(1)),
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(4) Subsection (1) applies to dispositions
of property occurring after February 22,
1994.
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(5) Subsection (2) applies to taxation
years that end after February 22, 1994
except that, in its application to property
disposed of before February 23, 1994,
subparagraph 39(1)(b)(ii) of the Act, as
enacted by subsection (2), shall be read as
follows:
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(ii) property described in subparagraph
(a)(i), (ii), (ii.1), (iii) or (v); and
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(6) Subsection (3) applies to dispositions
of property occurring after February 22,
1994, other than the disposition of property
in a taxation year that begins before
November 1994 where the property is
mark-to-market property (as defined in
subsection 142.2(1) of the Act, as enacted by
subsection 58(1)) for the year.
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50. (1) The Act is amended by adding the
following after section 51:
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Conversion of
debt
obligation
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51.1 Where
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(a) a taxpayer acquires a bond, debenture or
note of a debtor (in this section referred to
as the ``new obligation'') in exchange for a
capital property of the taxpayer that is
another bond, debenture or note of the same
debtor (in this section referred to as the
``convertible obligation''),
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(b) the terms of the convertible obligation
conferred on the holder the right to make the
exchange, and
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(c) the principal amount of the new
obligation is equal to the principal amount
of the convertible obligation,
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the cost to the taxpayer of the new obligation
and the proceeds of disposition of the
convertible obligation shall be deemed to be
equal to the adjusted cost base to the taxpayer
of the convertible obligation immediately
before the exchange.
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(2) Subsection (1) applies to exchanges
occurring after October 1994.
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51. (1) Paragraph 66.3(1)(a) of the Act is
replaced by the following:
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(a) shall, if acquired before November 13,
1981, be deemed
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(i) not to be a capital property of the
taxpayer,
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(ii) subject to subsection 142.6(3), to be
inventory of the taxpayer, and
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(iii) to have been acquired by the
taxpayer at a cost to the taxpayer of nil;
and
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(2) Subsection (1) applies to taxation
years that begin after October 1994.
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52. (1) Section 77 of the Act is repealed.
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(2) Subsection (1) applies to exchanges
occurring after October 1994.
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53. (1) The portion of paragraph
85(1)(c.1) of the Act before subparagraph
(i) is replaced by the following:
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(c.1) where the property was inventory,
capital property (other than depreciable
property of a prescribed class), a NISA
Fund No. 2 or a property that is eligible
property because of paragraph (1.1)(g) or
(g.1), and the amount that the taxpayer and
corporation have agreed on in their election
in respect of the property is less than the
lesser of
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(2) Paragraph 85(1.1)(g) of the Act is
replaced by the following:
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(g) a property that is a security or debt
obligation used by the taxpayer in the year
in, or held by it in the year in the course of,
carrying on the business of insurance or
lending money, other than
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(iii) where the taxpayer is a financial
institution in the year, a mark-to-market
property for the year;
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(3) Subsection 85(1.1) of the Act is
amended by adding the following after
paragraph (g):
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(g.1) where the taxpayer is a financial
institution in the year, a specified debt
obligation (other than a mark-to-market
property of the taxpayer for the year);
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(4) Section 85 of the Act is amended by
adding the following after subsection (1.3):
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Definitions
|
(1.4) For the purpose of subsection (1.1),
``financial institution'', ``mark-to-market
property'' and ``specified debt obligation''
have the meanings assigned by subsection
142.2(1).
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(5) Subsections (1), (3) and (4) apply to
dispositions occurring after February 22,
1994.
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(6) Subsection (2) applies to dispositions
occurring in taxation years that begin after
October 1994.
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54. (1) Section 87 of the Act is amended by
adding the following after subsection (1.4):
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Definitions
|
(1.5) For the purpose of this section,
``financial institution'', ``mark-to-market
property'' and ``specified debt obligation''
have the meanings assigned by subsection
142.2(1).
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(2) Paragraph 87(2)(e) of the Act is
replaced by the following:
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Capital
property
|
(e) subject to paragraph (e.4) and
subsection 142.6(5), where a capital
property (other than depreciable property or
an interest in a partnership) has been
acquired by the new corporation from a
predecessor corporation, the cost of the
property to the new corporation shall be
deemed to be the amount that was the
adjusted cost base of the property to the
predecessor corporation immediately
before the amalgamation;
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(3) Paragraph 87(2)(e.2) of the Act is
replaced by the following:
|
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Security or
debt
obligation
|
(e.2) subject to paragraphs (e.3) and (e.4)
and subsection 142.6(5), where a property
that is a security or debt obligation (other
than a capital property or an inventory) of a
predecessor corporation used by it in the
year in, or held by it in the year in the course
of, carrying on the business of insurance or
lending money in the taxation year ending
immediately before the amalgamation has
been acquired by the new corporation from
the predecessor corporation, the cost of the
property to the new corporation shall be
deemed to be the amount that was the cost
amount of the property to the predecessor
corporation immediately before the
amalgamation;
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Financial
institutions -
specified debt
obligation
|
(e.3) where the new corporation is a
financial institution in its first taxation year,
it shall be deemed, in respect of a specified
debt obligation (other than a
mark-to-market property) acquired from a
predecessor corporation that was a financial
institution in its last taxation year, to be the
same corporation as, and a continuation of,
the predecessor corporation;
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Financial
institutions -
mark-to-mark
et property
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(i) the new corporation is a financial
institution in its first taxation year and a
property acquired by the new corporation
from a predecessor corporation is a
mark-to-market property of the new
corporation for the year, or
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(ii) a predecessor corporation was a
financial institution in its last taxation
year and a property acquired by the new
corporation from the predecessor
corporation was a mark-to-market
property of the predecessor corporation
for the year,
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the cost of the property to the new
corporation shall be deemed to be the
amount that was the fair market value of the
property immediately before the
amalgamation;
|
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Financial
institutions -
mark-to-mark
et property
|
(e.5) for the purposes of subsections 112(5)
to (5.2) and (5.4) and the definition
``mark-to-market property'' in subsection
142.2(1), the new corporation shall be
deemed to be the same corporation as, and
a continuation of, each predecessor
corporation;
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(4) Subsection 87(2) of the Act is amended
by adding the following after paragraph
(g.1):
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