1st Session, 36th Parliament,
46 Elizabeth II, 1997

The House of Commons of Canada

BILL C-28

An Act to amend the Income Tax Act, the Income Tax Application Rules, the Bankruptcy and Insolvency Act, the Canada Pension Plan, the Children's Special Allowances Act, the Companies' Creditors Arrangement Act, the Cultural Property Export and Import Act, the Customs Act, the Customs Tariff, the Employment Insurance Act, the Excise Tax Act, the Federal-Provincial Fiscal Arrangements Act, the Income Tax Conventions Interpretation Act, the Old Age Security Act, the Tax Court of Canada Act, the Tax Rebate Discounting Act, the Unemployment Insurance Act, the Western Grain Transition Payments Act and certain Acts related to the Income Tax Act

      Her Majesty, by and with the advice and consent of the Senate and House of Commons of Canada, enacts as follows:

SHORT TITLE

Short title

1. This Act may be cited as the Income Tax Amendments Act, 1997.

PART I

R.S., c. 1 (5th Supp.); 1994, cc. 7, 8, 13, 21, 28, 29, 38, 41; 1995, cc. 1, 3, 11, 18, 21, 38, 46; 1996, cc. 11, 21, 23; 1997, cc. 10, 12, 25, 26

INCOME TAX ACT

DIVISION A

1997 BUDGET AMENDMENTS

2. (1) Paragraphs 12(1)(z.1) and (z.2) of the Income Tax Act are replaced by the following:

Qualifying environ-
mental trusts

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

Dispositions of interests in qualifying environ-
mental 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 qualifying environmental trust, other than consideration that is the assumption of a reclamation obligation in respect of the trust;

(2) Subsection (1) applies to taxation years that end after February 18, 1997.

3. (1) Subsection 18(11) of the Act is amended by striking out the word ``or'' at the end of paragraph (f), by adding the word ``or'' at the end of paragraph (g) and by adding the following after paragraph (g):

    (h) making a contribution into a registered education savings plan,

(2) Subsection (1) applies to the 1998 and subsequent taxation years.

4. (1) Paragraphs 20(1)(ss) and (tt) of the Act are replaced by the following:

Qualifying environ-
mental trusts

    (ss) a contribution made in the year by the taxpayer to a qualifying environmental trust under which the taxpayer is a beneficiary;

Acquisition of interests in qualifying environ-
mental trusts

    (tt) the consideration paid by the taxpayer in the year for the acquisition from another person or partnership of all or part of the taxpayer's interest as a beneficiary under a qualifying environmental trust, other than consideration that is the assumption of a reclamation obligation in respect of the trust; and

(2) Subsection (1) applies to taxation years that end after February 18, 1997 and, for the purpose of paragraph 20(1)(ss) of the Act, as enacted by subsection (1), each contribution made after 1995 and before February 19, 1997 by a taxpayer to a trust (other than a mining reclamation trust as defined in subsection 248(1) of the Act) is deemed to have been made on February 19, 1997.

5. (1) Subsection 37(12) of the Act is replaced by the following:

Misclassified expenditures

(12) If a taxpayer has not filed a prescribed form in respect of an expenditure in accordance with subsection (11), for the purposes of this Act , the expenditure is deemed not to be an expenditure on or in respect of scientific research and experimental development.

(2) Subsection (1) applies to the 1997 and subsequent taxation years.

6. (1) Paragraph 38(a) of the Act is replaced by the following:

    (a) subject to paragraph (a.1) , a taxpayer's taxable capital gain for a taxation year from the disposition of any property is 3/4 of the taxpayer's capital gain for the year from the disposition of the property;

    (a.1) a taxpayer's taxable capital gain for a taxation year from the disposition after February 18, 1997 and before 2002 of any property is 3/8 of the taxpayer's capital gain for the year from the disposition of the property where

      (i) the disposition is the making of a gift to a qualified donee (as defined in subsection 149.1(1)), other than a private foundation, of a share, debt obligation or right listed on a prescribed stock exchange, a share of the capital stock of a mutual fund corporation, a unit of a mutual fund trust, an interest in a related segregated fund trust (within the meaning assigned by paragraph 138.1(1)(a)) or a prescribed debt obligation, or

      (ii) the disposition is deemed by section 70 to have occurred and the taxpayer is deemed by subsection 118.1(5) to have made a gift described in subparagraph (i) of the property;

(2) Subsection (1) applies after February 18, 1997.

7. (1) Subparagraph 39(1)(a)(v) of the Act is replaced by the following:

      (v) an interest of a beneficiary under a qualifying environmental trust;

(2) The portion of subsection 39(5) of the Act before paragraph (a) is replaced by the following:

Exception

(5) An election under subsection (4) does not apply to a disposition of a Canadian security by a taxpayer (other than a mutual fund corporation or a mutual fund trust) who at the time of the disposition is

(3) Subsection (1) applies to taxation years that end after February 18, 1997.

(4) Subsection (2) applies to the 1991 and subsequent taxation years.

(5) For the purpose of subsection 39(4) of the Act, if

    (a) an election referred to in that subsection is made by a mutual fund corporation or mutual fund trust in prescribed form on or before its filing-due date for its taxation year that includes the day on which this Act is assented to, and

    (b) the election is in respect of a particular taxation year that ends after 1990 and that is not after the corporation's or trust's taxation year that includes the day on which this Act is assented to,

the election is deemed to have been made in the corporation's or trust's return of income under Part I of the Act for the particular year.

8. (1) Section 40 of the Act is amended by adding the following after subsection (1):

Gift of non-
qualifying security

(1.01) A taxpayer's gain for a particular taxation year from a disposition of a non-qualifying security of the taxpayer (as defined in subsection 118.1(18)) that is the making of a gift (other than an excepted gift, within the meaning assigned by subsection 118.1(19)) to a qualified donee (as defined in subsection 149.1(1)) is the amount, if any, by which

    (a) where the disposition occurred in the particular year, the amount, if any, by which the taxpayer's proceeds of disposition exceed the total of the adjusted cost base to the taxpayer of the security immediately before the disposition and any outlays and expenses to the extent they were made or incurred by the taxpayer for the purpose of making the disposition, and

    (b) where the disposition occurred in the 60-month period that ends at the beginning of the particular year, the amount, if any, deducted under paragraph (c) in computing the taxpayer's gain for the preceding taxation year from the disposition of the security

exceeds

    (c) the amount that the taxpayer claims in prescribed form filed with the taxpayer's return of income for the particular year, where

      (i) the taxpayer is not deemed by subsection 118.1(13) to have made a gift of property before the end of the particular year as a consequence of a disposition of the security by the donee or as a consequence of the security ceasing to be a non-qualifying security of the individual before the end of the particular year, and

      (ii) if the disposition occurred in the 60-month period that ends at the end of the particular year, the taxpayer is resident in Canada and not exempt from tax under this Part on the taxpayer's taxable income at the end of the particular year and throughout the following taxation year.

(2) Subsection (1) applies to the 1997 and subsequent taxation years.

9. (1) Subparagraph 56(1)(a)(i) of the Act is amended by striking out the word ``and'' at the end of clause (D), by adding the word ``and'' at the end of clause (E) and by adding the following after clause (E):

        (F) a benefit received under section 71 of the Canada Pension Plan or under a similar provision of a provincial pension plan as defined in section 3 of that Act,

(2) Subsection 56(1) of the Act is amended by adding the following after paragraph (a):

Benefits under CPP/QPP

    (a.1) where the taxpayer is an estate that arose on or as a consequence of the death of an individual, each benefit received under section 71 of the Canada Pension Plan, or under a similar provision of a provincial pension plan as defined in section 3 of that Act, after July 1997 and in the year in respect of the death of the individual;

(3) The portion of subsection 56(8) of the Act before paragraph (b) is replaced by the following:

CPP/QPP benefits for previous years

(8) Notwithstanding subsection (1), where

    (a) one or more amounts are received by an individual (other than a trust) in a taxation year as, on account of, in lieu of payment of or in satisfaction of, any benefit under the Canada Pension Plan or a provincial pension plan as defined in section 3 of that Act, and

(4) Subsections (1) and (2) apply to the 1997 and subsequent taxation years, except that clause 56(1)(a)(i)(F) of the Act, as enacted by subsection (1), does not apply to benefits received before August 1997 by a taxpayer in respect of the death of an individual if the taxpayer is an estate that arose on or as a consequence of the death of the individual.

(5) Subsection (3) applies to amounts received by an individual after 1994, other than an individual to whom tax has been remitted under subsection 23(2) of the Financial Administration Act in respect of the amounts referred to in paragraph 56(8)(a) of the Income Tax Act, as enacted by subsection (3).

10. (1) Paragraph (d) of the definition ``earned income'' in subsection 63(3) of the English version of the Act is replaced by the following:

      (d) all amounts received by the taxpayer as, on account of, in lieu of payment of or in satisfaction of, a disability pension under the Canada Pension Plan or a provincial pension plan as defined in section 3 of that Act;

(2) Subsection (1) applies to amounts received after 1994.

11. (1) The portion of section 64 of the Act before paragraph (a) is replaced by the following:

Attendant care expenses

64. If a taxpayer in respect of whom an amount may be deducted because of section 118.3 for a taxation year files with the taxpayer's return of income (other than a return of income filed under subsection 70(2), paragraph 104(23)(d) or 128(2)(e) or subsection 150(4)) for the year a prescribed form containing prescribed information, there may be deducted in computing the taxpayer's income for the year the lesser of

(2) Section 64 of the Act is amended by adding the word ``and'' at the end of paragraph (a), by striking out the word ``and'' at the end of paragraph (b) and by repealing paragraph (c).

(3) Subsections (1) and (2) apply to the 1997 and subsequent taxation years.

12. (1) Paragraph 72(1)(c) of the Act is replaced by the following:

    (c) no amount may be claimed under subparagraph 40(1)(a)(iii), paragraph 40(1.01)(c) or subparagraph 44(1)(e)(iii) in computing any gain of the taxpayer for the year;

(2) Subsection (1) applies to the 1997 and subsequent taxation years.

13. (1) Paragraph 75(3)(c.1) of the Act is replaced by the following:

    (c.1) by a qualifying environmental trust; or

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

14. (1) Paragraphs 81(1)(o) and (p) of the Act are repealed.

(2) Subsection (1) applies to the 1998 and subsequent taxation years.

15. (1) Subsection 87(2) of the Act is amended by adding the following after paragraph (m):

Gift of non-
qualifying security

    (m.1) for the purpose of computing the new corporation's gain under subsection 40(1.01) for any taxation year from the disposition of a property, the new corporation is deemed to be the same corporation as, and a continuation of, each predecessor corporation;

(2) Subsection (1) applies to the 1997 and subsequent taxation years.

16. (1) Subsection 88(1) of the Act is amended by adding the following after paragraph (e.6):

    (e.61) the parent is deemed for the purpose of section 110.1 to have made any gift deemed by subsection 118.1(13) to have been made by the subsidiary after the subsidiary ceased to exist;

(2) Subsection (1) applies after July 1997.

17. (1) Clause (a)(i)(A) of the definition ``capital dividend account'' in subsection 89(1) of the Act is replaced by the following:

        (A) the amount of the corporation's capital gain from a disposition (other than a disposition that is the making of a gift after November 1997) of a property in the period beginning at the beginning of its first taxation year (that began after the corporation last became a private corporation and that ended after 1971) and ending immediately before the particular time

(2) Clause (a)(ii)(A) of the definition ``capital dividend account'' in subsection 89(1) of the Act is replaced by the following:

        (A) the amount of the corporation's capital loss from a disposition (other than a disposition that is the making of a gift after November 1997) of a property in that period

(3) The definition ``public corporation'' in subsection 89(1) of the Act is replaced by the following:

``public corporation''
« société publique »

``public corporation'' at any particular time means

      (a) a corporation that is resident in Canada at the particular time if at that time a class of shares of the capital stock of the corporation is listed on a prescribed stock exchange in Canada,

      (b) a corporation (other than a prescribed labour-sponsored venture capital corporation) that is resident in Canada at the particular time if at any time after June 18, 1971 and

        (i) before the particular time, it elected in prescribed manner to be a public corporation, and at the time of the election it complied with prescribed conditions relating to the number of its shareholders, the dispersal of ownership of its shares and the public trading of its shares, or