PART VIII

AMENDMENTS RELATING TO SECURITIES LENDING

72. (1) Paragraph (e) of the definition ``financial institution'' in subsection 181(1) of the Act is replaced by the following:

      (e) a registered securities dealer,

(2) Subsection (1) applies to taxation years that end after June 1989.

73. (1) The portion of subparagraph 212(1)(b)(xii) of the Act before clause (A) is replaced by the following:

      (xii) interest payable under a securities lending arrangement by a lender under the arrangement that is a financial institution prescribed for the purpose of clause (iii)(D), or a registered securities dealer resident in Canada, on money provided to the lender either as collateral or as consideration for the particular security lent or transferred under the arrangement where

(2) The portion of subsection 212(18) of the Act before paragraph (a) is replaced by the following:

Return by financial institutions and registered securities dealers

(18) Every person who in a taxation year is a prescribed financial institution for the purpose of clause (1)(b)(iii)(D) or a person resident in Canada who is a registered securities dealer shall

(3) The portion of subsection 212(19) of the Act before the formula is replaced by the following:

Tax on registered securities dealers

(19) Every taxpayer who is a registered securities dealer resident in Canada shall pay a tax under this Part equal to the amount determined by the formula

(4) Subsections (1) and (3) apply to securities lending arrangements entered into after May 28, 1993.

(5) Subsection (2) applies to taxation years that end after May 28, 1993.

74. (1) The definition ``dividend rental arrangement'' in subsection 248(1) of the Act is amended by adding the following after paragraph (b):

    and for greater certainty includes any arrangement under which

      (c) a corporation at any time receives on a particular share a taxable dividend that would, but for subsection 112(2.3), be deductible in computing its taxable income or taxable income earned in Canada for the taxation year that includes that time, and

      (d) the corporation is obligated to pay to another person an amount as compensation for

        (i) that dividend,

        (ii) a dividend on a share that is identical to the particular share, or

        (iii) a dividend on a share that, during the term of the arrangement, can reasonably be expected to provide to a holder of the share the same or substantially the same proportionate risk of loss or opportunity for gain as the particular share,

      that, if paid, would be deemed by subsection 260(5) to have been received by that other person as a taxable dividend;

(2) Subsection 248(1) of the Act is amended by adding the following in alphabetical order:

``registered securities dealer''
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``registered securities dealer'' means a person registered or licensed under the laws of a province to trade in securities, in the capacity of an agent or principal, without any restriction as to the types or kinds of securities in which that person may trade;

(3) Subsection (1) applies to dividends received at any time by a corporation on shares acquired

    (a) before that time and after April 1989, where the corporation so elects by notifying the Minister of National Revenue in writing before 1996; and

    (b) before that time and after June 1994, in any other case.

(4) Subsection (2) applies after April 26, 1989.

75. (1) Paragraph 260(5)(b) of the Act is replaced by the following:

    (b) by or from a person who is a registered securities dealer resident in Canada, where the amount is received or paid, as the case may be, in the ordinary course of the business of trading in securities carried on by the dealer,

(2) Subsections 260(6) and (7) of the Act are replaced by the following:

Non-deductibi lity

(6) In computing a taxpayer's income under Part I from a business or property

    (a) where the taxpayer is not a registered securities dealer, no deduction shall be made in respect of an amount that, if paid, would be deemed by subsection (5) to have been received by another person as a taxable dividend; and

    (b) where the taxpayer is a registered securities dealer, no deduction shall be made in respect of more than 2/3 of that amount.

Deductible amount

(6.1) Notwithstanding subsection (6), there may be deducted in computing a corporation's income under Part I from a business or property for a taxation year an amount equal to the lesser of

    (a) the amount that the corporation is obligated to pay to another person under an arrangement described in paragraphs (c) and (d) of the definition ``dividend rental arrangement'' in subsection 248(1) that, if paid, would be deemed by subsection (5) to have been received by another person as a taxable dividend, and

    (b) the amount of the dividends received by the corporation under the arrangement that were identified in its return of income under Part I for the year as an amount in respect of which no amount was deductible because of subsection 112(2.3) in computing the taxpayer's taxable income or taxable income earned in Canada.

Dividend refund

(7) For the purposes of section 129,

    (a) any amount paid by a corporation that is not a registered securities dealer (other than an amount for which a deduction in computing income may be claimed under subsection (6.1)), and

    (b) 1/3 of any amount paid by a corporation that is a registered securities dealer (other than an amount for which a deduction in computing income may be claimed under subsection (6.1))

that is deemed by subsection (5) to have been received by another person as a taxable dividend shall be deemed to have been paid by the corporation as a taxable dividend.

(3) Subsection (1) applies to transfers, loans and payments made after April 26, 1989.

(4) Subsections 260(6) and (7) of the Act, as enacted by subsection (2), apply to payments made after June 1989, except that in its application to payments made after June 1989 and before July 1994 with respect to a corporation that has not elected under subsection 74(3), subsection 260(7) of the Act shall be read without reference to the expression ``(other than an amount for which a deduction in computing income may be claimed under subsection (6.1))''.

(5) Subsection 260(6.1) of the Act, as enacted by subsection (2), applies to payments made

    (a) after April 1989, where the corporation has elected under subsection 74(3), except that, for the purposes of paragraph 260(6.1)(b) of the Act, a dividend received after April 1989 and before July 1994 that was identified in the corporation's return of income under Part I of the Act for its first taxation year that ends after this Act is assented to shall be deemed to have been identified in its return of income under that Part for its taxation year in which the dividend was received; and

    (b) after June 1994, in any other case.

PART IX

GENERAL

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

Debt forgiveness

    (z.3) any amount required because of subsection 80(13) or (17) to be included in computing the taxpayer's income for the year; and

Eligible funeral arrangements

    (z.4) any amount required because of subsection 148.1(3) to be included in computing the taxpayer's income for the year.

(2) Paragraph 12(1)(z.3) of the Act, as enacted by subsection (1), applies to taxation years that end after February 21, 1994.

(3) Paragraph 12(1)(z.4) of the Act, as enacted by subsection (1), applies to the 1993 and subsequent taxation years.

77. (1) Paragraph (c) of the definition ``superficial loss'' in section 54 of the Act is replaced by the following:

      (c) was a disposition deemed by paragraph 33.1(11)(a), subsection 45(1), section 48 as it read in its application before 1993, section 50 or 70, subsection 104(4), section 128.1, paragraph 132.2(1)(f), subsection 138(11.3) or 142.5(2), paragraph 142.6(1)(b) or subsection 144(4.1) or (4.2) or 149(10) to have been made,

(2) Subsection (1) applies to dispositions that occur after February 22, 1994, except that in applying paragraph (c) of the definition ``superficial loss'' in section 54 of the Act, as enacted by subsection (1), before July 1994, it shall be read without reference to ``paragraph 132.2(1)(f)''.

78. (1) The portion of the description of A in the definition ``foreign accrual property income'' in subsection 95(1) of the Act before paragraph (a) is replaced by the following:

    A is the amount that would, if section 80 did not apply to the affiliate for the year or a preceding taxation year, be the total of the affiliate's incomes for the year from property and businesses (other than active businesses), other than

(2) The portion of the description of A in the definition ``foreign accrual property income'' in subsection 95(1) of the Act before paragraph (a), as enacted by subsection (1), is replaced by the following:

    A is the amount that would, if section 80 did not apply to the affiliate for the year or a preceding taxation year, be the total of the affiliate's incomes for the year from property and businesses (other than active businesses) determined 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, other than

(3) Subsection (1) applies to taxation years that end after February 21, 1994.

(4) Subsection (2) applies 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, subsection (2) applies to taxation years of such foreign affiliate of the taxpayer that end after 1994, unless

    (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

    (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.

R.S., c. 2 (5th Supp.); 1994, cc. 7, 21

INCOME TAX APPLICATION RULES

79. (1) Subparagraph 26(3)(c)(iv) of the Income Tax Application Rules is replaced by the following:

      (iv) all amounts required by subsection 53(1) of the amended Act (other than paragraphs 53(1)(f.1) to (f.2)) to be added in computing its adjusted cost base to the taxpayer immediately before the disposition, and

(2) Clause 26(5)(c)(ii)(A) of the Rules is replaced by the following:

        (A) a capital loss or an amount that would, but for paragraph 40(2)(e), (e.1) or (e.2) or subsection 85(4) of the amended Act, be a capital loss from the disposition to a corporation after 1971 of the property by a person who owned the property before it so vested in the subsequent owner, or

(3) Subsections (1) and (2) apply to taxation years that end after February 21, 1994.

RELATED AMENDMENTS

1990, c. 39

An Act to amend the Income Tax Act, the Federal-Provincial Fiscal Arrangements and Federal Post-Secondary Education and Health Contributions Act, the Old Age Security Act, the Public Utilities Income Tax Transfer Act, the War Veterans Allowance Act and a related Act

80. (1) Subsection 55(3) of An Act to amend the Income Tax Act, the Federal-Provincial Fiscal Arrangements and Federal Post-Secondary Education and Health Contributions Act, the Old Age Security Act, the Public Utilities Income Tax Transfer Act, the War Veterans Allowance Act and a related Act is repealed.

(2) Subsection (1) shall be deemed to have come into force on October 23, 1990.