Application
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(2) For the purposes of this section,
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(a) paragraphs 80(2)(a), (b), (j), (l) and (n)
apply; and
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(b) a person has a significant interest in a
corporation at any time if the person owned
at that time
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(i) shares of the capital stock of the
corporation that would give the person
25% or more of the votes that could be
cast under all circumstances at an annual
meeting of shareholders of the
corporation, or
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(ii) shares of the capital stock of the
corporation having a fair market value of
25% or more of the fair market value of
all the issued shares of the capital stock
of the corporation
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and, for the purposes of this paragraph, a
person shall be deemed to own at any time
each share of the capital stock of a
corporation that is owned, otherwise than
because of this paragraph, at that time by
another person with whom the person does
not deal at arm's length.
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Deemed
settlement on
amalgamation
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(3) Where a commercial obligation or
another obligation (in this subsection referred
to as the ``indebtedness'') of a debtor that is a
corporation to pay an amount to another
corporation (in this subsection referred to as
the ``creditor'') is settled on an amalgamation
of the debtor and the creditor, the indebtedness
shall be deemed to have been settled
immediately before the time that is
immediately before the amalgamation by a
payment made by the debtor and received by
the creditor of an amount equal to the amount
that would have been the creditor's cost
amount of the indebtedness at that time if
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(a) the definition ``cost amount'' in
subsection 248(1) were read without
reference to paragraph (e) of that definition;
and
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(b) that cost amount included amounts
added in computing the creditor's income
in respect of the portion of the indebtedness
representing unpaid interest, to the extent
those amounts have not been deducted in
computing the creditor's income as bad
debts in respect of that unpaid interest.
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Deemed
settlement on
winding-up
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(4) Where there is a winding-up of a
subsidiary to which the rules in subsection
88(1) apply and
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(a) a debt or other obligation (in this
subsection referred to as the ``subsidiary's
obligation'') of the subsidiary to pay an
amount to the parent, or
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(b) a debt or other obligation (in this
subsection referred to as the ``parent's
obligation'') of the parent to pay an amount
to the subsidiary
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is, as a consequence of the winding-up, settled
at a particular time without any payment of an
amount or by the payment of an amount that
is less than the principal amount of the
subsidiary's obligation or the parent's
obligation, as the case may be,
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(c) where that payment is less than the
amount that would have been the cost
amount to the parent or subsidiary of the
subsidiary's obligation or the parent's
obligation immediately before the
particular time if the definition ``cost
amount'' in subsection 248(1) were read
without reference to paragraph (e) of that
definition and the parent so elects in a
prescribed form on or before the day on or
before which the parent is required to file a
return of income pursuant to section 150 for
the taxation year that includes the particular
time, the amount paid at that time in
satisfaction of the principal amount of the
subsidiary's obligation or the parent's
obligation shall be deemed to be equal to
the amount that would be the cost amount to
the parent or the subsidiary, as the case may
be, of the subsidiary's obligation or the
parent's obligation immediately before the
particular time if
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(i) the definition ``cost amount'' in
subsection 248(1) were read without
reference to paragraph (e) of that
definition, and
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(ii) that cost amount included amounts
added in computing the parent's income
or the subsidiary's income in respect of
the portion of the indebtedness
representing unpaid interest, to the extent
that the parent or the subsidiary has not
deducted any amounts as bad debts in
respect of that unpaid interest, and
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(d) for the purposes of applying section 80
to the subsidiary's obligation, where
property is distributed at any time in
circumstances to which paragraph 88(1)(a)
or (b) applies and the subsidiary's
obligation is settled as a consequence of the
distribution, the subsidiary's obligation
shall be deemed to have been settled
immediately before the time that is
immediately before the time of the
distribution and not at any later time.
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Deemed
settlement on
winding-up
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(5) Where there is a winding-up of a
subsidiary to which the rules in subsection
88(1) apply and, as a consequence of the
winding-up, a distress preferred share issued
by the subsidiary and owned by the parent (or
a distress preferred share issued by the parent
and owned by the subsidiary) is settled at any
time without any payment of an amount or by
the payment of an amount that is less than the
principal amount of the share,
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(a) where the payment was less than the
adjusted cost base of the share to the parent
or the subsidiary, as the case may be,
immediately before that time, for the
purposes of applying the provisions of this
Act to the issuer of the share, the amount
paid at that time in satisfaction of the
principal amount of the share shall be
deemed to be equal to its adjusted cost base
to the parent or to the subsidiary, as the case
may be; and
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(b) for the purposes of applying section 80
to the share, where property is distributed at
any time in circumstances to which
paragraph 88(1)(a) or (b) applies and the
share is settled as a consequence of the
distribution, the share shall be deemed to
have been settled immediately before the
time that is immediately before the time of
the distribution and not at any later time.
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Specified
obligation in
relation to
debt parking
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(6) For the purpose of subsection (7), an
obligation issued by a debtor is, at a particular
time, a specified obligation of the debtor
where
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(a) at any previous time (other than a time
before the last time, if any, the obligation
became a parked obligation before the
particular time),
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(i) a person who owned the obligation
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(A) dealt at arm's length with the
debtor, and
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(B) where the debtor is a corporation,
did not have a significant interest in the
debtor, or
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(ii) the obligation was acquired by the
holder of the obligation from another
person who was, at the time of that
acquisition, not related to the holder or
related to the holder only because of
paragraph 251(5)(b); or
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(b) the obligation is deemed by subsection
50(1) to be reacquired at the particular time.
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Parked
obligation
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(7) For the purposes of this subsection and
subsections (6), (8) and (10),
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(a) an obligation issued by a debtor is a
``parked obligation'' at any time where at
that time
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(i) the obligation is a specified obligation
of the debtor, and
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(ii) the holder of the obligation
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(A) does not deal at arm's length with
the debtor, or
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(B) where the debtor is a corporation
and the holder acquired the obligation
after July 12, 1994 (otherwise than
pursuant to an agreement in writing
entered into on or before July 12,
1994), has a significant interest in the
debtor; and
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(b) an obligation that is, at any time,
acquired or reacquired in circumstances to
which subparagraph (6)(a)(ii) or paragraph
(6)(b) applies shall, if the obligation is a
parked obligation immediately after that
time, be deemed to have become a parked
obligation at that time.
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Deemed
settlement
after debt
parking
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(8) Where at any particular time after
February 21, 1994 a commercial debt
obligation that was issued by a debtor
becomes a parked obligation (otherwise than
pursuant to an agreement in writing entered
into before February 22, 1994) and the
specified cost at the particular time to the
holder of the obligation is less than 80% of the
principal amount of the obligation, for the
purpose of applying the provisions of this Act
to the debtor
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(a) the obligation shall be deemed to have
been settled at the particular time; and
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(b) the forgiven amount at the particular
time in respect of the obligation shall be
determined as if the debtor had paid an
amount at the particular time in satisfaction
of the principal amount of the obligation
equal to that specified cost.
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Statute-barred
debt
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(9) Where at any particular time after
February 21, 1994 a commercial debt
obligation issued by a debtor that is payable to
a person (other than a person with whom the
debtor is related at the particular time)
becomes unenforceable in a court of
competent jurisdiction because of a statutory
limitation period and the obligation would,
but for this subsection, not have been settled
or extinguished at the particular time, for the
purpose of applying the provisions of this Act
to the debtor, the obligation shall be deemed
to have been settled at the particular time.
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Subsequent
payments in
satisfaction of
debt
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(10) Where a commercial debt obligation
issued by a debtor is first deemed by
subsection (8) or (9) to have been settled at a
particular time, at a subsequent time a
payment is made by the debtor of an amount
in satisfaction of the principal amount of the
obligation and it cannot reasonably be
considered that one of the reasons the
obligation became a parked obligation or
became unenforceable, as the case may be,
before the subsequent time was to have this
subsection apply to the payment, in
computing the debtor's income for the
taxation year (in this subsection referred to as
the ``subsequent year'') that includes the
subsequent time from the source in connection
with which the obligation was issued, there
may be deducted the amount determined by
the formula
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0.75(A - B) - C
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where
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A is the amount of the payment,
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B is the amount, if any, by which
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(a) the principal amount of the obligation
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(b) all amounts each of which is a
forgiven amount at any time
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(i) in the period that began at the
particular time and ended immediately
before the subsequent time, and
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(ii) at which a particular portion of the
obligation is deemed by subsection (8)
or (9) to be settled
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in respect of the particular portion, and
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(c) all amounts paid in satisfaction of the
principal amount of the obligation in the
period that began at the particular time
and ended immediately before the
subsequent time, and
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C is the amount, if any, by which the total of
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(a) all amounts deducted under section
61.3 in computing the debtor's income
for the subsequent year or a preceding
taxation year,
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(b) all amounts added because of
subsection 80(13) in computing the
debtor's income for the subsequent year
or a preceding taxation year in respect of
a settlement under subsection (8) or (9) in
a period during which the debtor was
exempt from tax under this Part on its
taxable income, and
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(c) all amounts added because of
subsection 80(13) in computing the
debtor's income for the subsequent year
or a preceding taxation year in respect of
a settlement under subsection (8) or (9) in
a period during which the debtor was
non-resident (other than any of those
amounts added in computing the debtor's
taxable income or taxable income earned
in Canada)
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(d) the amount, if any, deducted because
of paragraph 37(1)(f.1) in determining
the balance determined under subsection
37(1) in respect of the debtor
immediately after the subsequent year,
and
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(e) all amounts by which the amount
deductible under this subsection in
respect of a payment made by the debtor
before the subsequent time in computing
the debtor's income for the subsequent
year or a preceding year has been reduced
because of this description.
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Foreign
currency
gains and
losses
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(11) Where an obligation issued by a debtor
is denominated in a currency (other than the
Canadian currency) and the obligation is
deemed by subsection (8) or (9) to have been
settled, those subsections do not apply for the
purpose of determining any gain or loss of the
debtor on the settlement that is attributable to
a fluctuation in the value of the currency
relative to the value of Canadian currency.
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Definitions
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80.02 (1) In this section, ``commercial debt
obligation'', ``commercial obligation'',
``distress preferred share'' and ``person'' have
the meanings assigned by subsection 80(1).
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General rules
for distress
preferred
shares
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(2) For the purpose of applying the
provisions of this Act to an issuer of a distress
preferred share,
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(a) the principal amount, at any time, of the
share shall be deemed to be the amount
(determined at that time) for which the
share was issued;
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(b) the amount for which the share was
issued shall, at any time, be deemed to be
the amount, if any, by which the total of
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(i) the amount for which the share was
issued, determined without reference to
this paragraph, and
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(ii) all amounts by which the paid-up
capital in respect of the share increased
after the share was issued and before that
time
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(iii) the total of all amounts each of which
is an amount paid before that time on a
reduction of the paid-up capital in respect
of the share, except to the extent that the
amount is deemed by section 84 to have
been paid as a dividend;
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(c) the share shall be deemed to be settled at
such time as it is redeemed, acquired or
cancelled by the issuer; and
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(d) a payment in satisfaction of the principal
amount of the share is any payment made on
a reduction of the paid-up capital in respect
of the share to the extent that the payment
would be proceeds of disposition of the
share within the meaning that would be
assigned by the definition ``proceeds of
disposition'' in section 54 if that definition
were read without reference to paragraph
(j).
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Substitution
of distress
preferred
share for debt
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(3) Where any part of the consideration
given by a corporation to another person for
the settlement or extinguishment at any time
of a commercial debt obligation that was
issued by the corporation and owned
immediately before that time by the other
person consists of a distress preferred share
issued by the corporation to the other person,
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(a) for the purposes of section 80, the
amount paid at that time in satisfaction of
the principal amount of the obligation
because of the issue of that share shall be
deemed to be equal to the lesser of
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(i) the principal amount of the obligation,
and
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(ii) the amount by which the paid-up
capital in respect of the class of shares
that include that share increases because
of the issue of that share; and
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(b) for the purpose of subparagraph
(2)(b)(i), the amount for which the share
was issued shall be deemed to be equal to
the amount deemed by paragraph (a) to
have been paid at that time.
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Substitution
of commercial
debt
obligation for
distress
preferred
share
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(4) Where any part of the consideration
given by a corporation to another person for
the settlement at any time of a distress
preferred share that was issued by the
corporation and owned immediately before
that time by the other person consists of a
commercial debt obligation issued by the
corporation to the other person, for the
purposes of section 80
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(a) the amount paid at that time in
satisfaction of the principal amount of the
share because of the issue of that obligation
shall be deemed to be equal to the principal
amount of the obligation; and
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(b) the amount for which the obligation was
issued shall be deemed to be equal to its
principal amount.
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Substitution
of distress
preferred
share for other
distress
preferred
share
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(5) Where any part of the consideration
given by a corporation to another person for
the settlement at any time of a particular
distress preferred share that was issued by the
corporation and owned immediately before
that time by the other person consists of
another distress preferred share issued by the
corporation to the other person, for the
purposes of section 80
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(a) the amount paid at that time in
satisfaction of the principal amount of the
particular share because of the issue of the
other share shall be deemed to be equal to
the amount by which the paid-up capital in
respect of the class of shares that includes
the other share increases because of the
issue of the other share; and
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(b) for the purpose of subparagraph
(2)(b)(i), the amount for which the other
share was issued shall be deemed to be
equal to the amount deemed by paragraph
(a) to have been paid at that time.
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Substitution
of
non-commerc
ial obligation
for distress
preferred
share
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(6) Where any part of the consideration
given by a corporation to another person for
the settlement at any time of a distress
preferred share that was issued by the
corporation and owned immediately before
that time by the other person consists of
another share (other than a distress preferred
share) or an obligation (other than a
commercial obligation) issued by the
corporation to the other person, for the
purposes of section 80, the amount paid at that
time in satisfaction of the principal amount of
the distress preferred share because of the
issue of the other share or obligation shall be
deemed to be equal to the fair market value of
the other share or obligation, as the case may
be, at that time.
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Deemed
settlement on
expiry of term
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(7) Where at any time a distress preferred
share becomes a share that is not a distress
preferred share, for the purposes of section 80
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(a) the share shall be deemed to have been
settled immediately before that time; and
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(b) a payment equal to the fair market value
of the share at that time shall be deemed to
have been made immediately before that
time in satisfaction of the principal amount
of the share.
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